Tip #4: Impose a Cap On Spending For College
It’s very easy to lose track of money spent on college. You can write a check here or there for living expenses, allow your child to take money out of your account, pay his or her credit card, and send in tuition payments to school –– and before you know it you have spent many thousands of dollars. Sit down and talk with your son or daughter and set a budget. Explain what is financially feasible and possible for you to do – and what is not.
If all you can afford to give (or take out in loans) is, say $5,000 or $10,000 a year, then put that number on the table as your limit, then stick to it. For some advice on how much debt you can realistically manage, go to a financial planner who specializes in college financing.
Tip #5: Don’t skip your retirement savings
Experts from the National Institute of Certified College Planners agree with me that you shouldn’t sacrifice your retirement to pay for or borrow money for your child’s education. Think about it this way: Little Johnny might be able to borrow for college, but who’s going to loan you money for your retirement?
Tip #6: Allow your child to borrow first
This is a more cost effective way to take on college debt since federal Stafford Loans stand at a maximum interest rate of 6.8% for students, but PLUS loans (Parent Loans for University Students), which are made to parents carry an 7.9% interest rate.
Tip #7: Use online college saver programs like Upromise.com
When you enroll in a program like Upromise, a small portion of the money you spend on everyday things – like gas for your car, clothes purchases or entertainment – gets funneled into a savings account for your child. Heck, if you were going to spend the money anyway, you might as well get a little rebate for that spending, which can help pay down college expenses.
All parents understandably want a better life for their children, both in terms of their personal happiness and their financial security. Following the steps I’ve outlined above will go a long way toward helping you and your kids achieve financial stability.
“Ask The Money Coach” is a syndicated column written by personal finance expert Lynnette Khalfani-Cox, co-founder of the free financial advice blog, AskTheMoneyCoach.com. Follow Lynnette on Twitter at @themoneycoach.