While college is an exciting time for incoming students, parents often worry about the financial burden of paying for their children’s college education. In many cases, college debt turns into a long-term financial burden for students and parents alike. At Ivy Ridge Asset Management in Rhinebeck, our financial advisors have helped hundreds of families prepare for their children’s college education through strategic financial planning. If you’re concerned about being able to support your child’s education financially, below are some tips to help you successfully plan for your children’s education.

Start Saving Money Earlydreamstime_xxl_53877693

If your kids are still young, accumulating savings to pay for college is not as difficult as it sounds. Establishing a firm commitment to saving early on will put you in a strong position financially when your children reach college age. A great example of this is parents who start saving $250 a month when their child is born and increase their contribution by 3% year over year. This seemingly small monthly sum could accumulate to an impressive $134,000 by the time your child enters college!

Set A Realistic Budget

Before you give your child permission to apply to Harvard and Yale, make sure you take time to sit down with your financial advisor to create a realistic budget for your child’s education. A recent survey from Discover Financial Services revealed that fewer than half of parents were limiting their child’s choice of college based on tuition cost. While you don’t want to say no to your child’s top choice college, it’s important to discuss finances with them before they start applying to schools. If you live near Rhinebeck and need help navigating your finances for your child’s education, contact the financial advisors at Ivy Ridge Asset Management.

Explore Student Loans

If you’re considering student loans to help pay for your child’s college education, make sure you understand the differences between federal and private loans. Federal loans are a great option for students, as they offer great borrower protections compared to private student loans. If you’re interested in applying for a federal loan, the Free Application for Federal Student Aid, or FASFA, is what you’ll want to fill out. While there are several different types of federal student loans available, below are some of the most popular.

  • Direct subsidized loans, or subsidized Staffard loans, are specifically designed for undergraduate borrowers in need of financial aid. If your child qualifies for this type of federal loan, you won’t be responsible for any interest that accrues while your child is in school.
    Perkins loans are subsidized loans designed for both undergraduate and graduate borrowers with extreme financial needs. Unlike most federal loans, which have interest rates set by Congress each year, Perkins loans always charge a 5% interest rate without any additional fees.
  • Direct unsubsidized loans, or unsubsidized Stafford loans, are among the most common types of federal student loans available. These loans are available to both undergraduate and graduate borrowers and they do accrue interest while the student is in school.
  • Grad PLUS loans are specifically for graduate students and professionals and they don’t have any borrowing limits. Unlike Staffard and Perkins loans, loan applicants must have decent credit to qualify for a Grad PLUS loan.
  • Parent PLUS loans are designed for parents with dependent undergraduate students. They can borrow as much money as they need to cover their child’s college costs. To apply for a Parent PLUS loan, you must have a great credit history to qualify.

Federal student loans are a great option for borrowers who need financial assistance to pay for college. If federal student loans aren’t your cup of tea, there are also private student loans to consider. Parents and graduate students with a good credit score may be able to get a better interest rate with a private student loan; however, there are some downsides. Most private loans do not provide income-driven repayment plans and forgiveness programs in the case you are unable to make a payment. While some private loan companies offer some of these benefits, they are usually not as favorable as federal loans.

Avoid Derailing Your Retirement Plan

At Ivy Ridge Asset, many of our clients ask us about borrowing from their retirement plan to help pay for their child’s college tuition. If you’ve been saving money in your employer-sponsored 401(k) and your retirement plan is in good shape, you do have the option of borrowing money from your plan; however, our financial advisors don’t recommend it. In most cases, you must repay these loans over five years through payroll deductions. If you leave your current employer during this time, you might have to repay the amount in full.

Talk To Your Kids About Debt

Many soon-to-be college students have no idea how student loan debt works and how it can negatively affect their finances. Since kids and teenagers have little experience budgeting a monthly income, they have no real world experience when it comes to making rational decisions about their money. When you take the time to talk to your children about debt and their financial future, you can help them understand the importance of making sound financial decisions. If you need help talking to your teen about finances, contact the financial advisors at Ivy Ridge Asset Management in Rhinebeck. We’ll work with you and your child to ensure you understand the ins and outs of student loans and college financial planning.

At Ivy Ridge Asset Management, we’ve helped hundreds of families successfully plan for their children’s college expenses. When you visit our financial advisors in Rhinebeck, we’ll help you calculate your expected family contribution for your child’s education using our CCPS® blueprint software. Our unique software allows us to drill down on individual college costs to assess the best financial aid strategy for you. If you’re interested in learning more about our college planning and funding services, contact our financial advisors today! We’ll take the time to educate you on the variety of student loans available so you can make the best financial decision for your family.