Financial planning for college is important so that everything goes smoothly when your child is ready to go. Whether your child is an infant or just a few years away, there are steps that you can take to make sure that you are saving the right way. Take a look at the top college financial planning mistakes that parents make.
Parents Need to Understand the Expected Family Contribution
When students are considered for financial aid, there is an Expected Family Contribution that will be determined. This is based on the family’s income and assets. It is important to make sure that you have money saved in the appropriate accounts. For example, they expect you to use 20% of any assets accounts owned by the child.
On the other hand, they only consider you to use 5.64% of the parents’ assets. None of the assets of the grandparents are expected to be used. Understanding this will help you understand what they expect your contribution to be.
College Savings Is Not Retirement
When you save for retirement, you will have the money invested for decades. You can choose some higher-risk investments because there is time for them to recover. The college savings cover a much smaller amount of time, so you might want safer investments. There are plans that are specifically for college tuition, so those are the ones to consider.
Don’t Ignore Your Educational Tax Breaks
Parents get a tax deduction or tax credit for college planning. This is available to anyone who earns less than $90,000 or $180,000 if married parents file jointly. You get up to $2500 per year per student, and it pays up to 20% of the first $10,000 of higher education expenses.
Don’t Overlook Student Loans
Some parents consider student loans a sign that they didn’t save enough for college. However, using these loans properly can get a 0% loan and suspended payments while the student is in school. There is no shame in taking a student loan, as it allows you to pay for college and it has a low interest rate.