INDUSTRY INSIGHT
YOUR FINANCES
SPONSORED CONTENT
TAKE CHARGE OF YOUR
CHILDREN’S EDUCATION NOW!
“They always say time changes things, but you actually have to change them yourself.”
-Andy Warhol
$70,674 PER YEAR!
M
y son is currently a senior in high school, and
I started doing the research last year on some
schools in which he has interest. I started with
my alma mater, Dickinson College, and the crazy
number above was staring back at me from the computer
screen. The cost of education has certainly changed in the 25
years since I graduated! According to the College Board, tuition
has increased by well over 3% above the rate of inflation for
public colleges and over 2% per year for private colleges over
the past 30 years. 1 One of the biggest issues with that increase is
that wage growth has not even come close to keeping up with
it. According to the Federal Reserve Bank of St. Louis, growth in
wages was only .3% per year over the same time period. 2
So, what does this mean for the average family? It means
that planning becomes paramount in tackling this beast. “They
always say time changes things, but you actually have to change
them yourself,” to quote Andy Warhol. We cannot rely on anyone
but ourselves to solve this dilemma for us. There are several
planning items that should be considered. One item is that we
need to be more responsible in saving money for our children
from birth, to at least partially alleviate the pressure of paying for
college with our income when they are enrolled. But what is the
best way to save for education?
The government has given us a great tool for doing so with
the Section 529 plans. 529 plans are like Roth IRAs for education
– you put in after-tax money and receive distributions from them
tax free if used for qualified education expenses. So, if you put in
$20,000 and it grows to $40,000, you receive the $40,000 back
without taxes. That is a significant benefit! Saving money in the
child’s name in savings accounts or CDs with low interest rates
will likely not keep up with the inflating cost of education, and
this strategy may hurt when applying for financial aid. Assets in
529 plans can be owned by the parent, grandparent, or whoever
gives the money to the child. Accounts in the child’s name are
considered much more significantly in financial aid calculations.
529s can now also be used for private elementary and high
school tuition – up to $10,000 per student per year.
Another item that should be considered is that there is a
lot more money available, especially from private colleges, for
kids who have high grades and test scores. Some schools offer
more than half of the annual cost in academic aid for students
above a certain GPA and test score. Our children need to help to
change things for themselves. This aid can immensely benefit
those who will not qualify for financial need-based aid. This
often puts private colleges in the same price range as public
ones. For example, Allegheny College in Meadville, offers merit-
based scholarships of $5,000 to $35,000 per year. 3 Getting the
maximum amount would cut the cost by over half.
Speaking of need-based aid, parents should file the FAFSA
form annually even if there is little chance for financial aid. There
may be low-cost loans or work-study available even for high
income earners. This is especially true for families with more
than one child in college at the same time. The FAFSA is available
on October 1, and it should be completed ASAP. The “Expected
Family Contribution” (EFC) will be calculated and sent to the
family. This is the number used by colleges to determine how
much aid to give to students.
Another way that some families are saving money on college
these days is having students go to community college for a
year or two to take their core courses. This method has gained
popularity over the past several years as the cost of college has
continued to rise. This can also be beneficial if the student is
unsure of major upon entering college. Coming out of college
with less debt puts students in a better financial position to start
out.
In summary, we need to take things into our own hands,
create a plan, and start saving sooner rather than later for college
expenses in order to lessen the burden when children go to
college. Academics are extremely important to receiving merit-
based aid, and need-based aid should be considered even for
those who think they make too much to qualify. Lastly, consider
community college for students who are uncertain or to save
money and allow them to start their careers with less debt.
Source: https://trends.collegeboard.org/college-pricing/figures-tables/average-
rates-growth-published-charges-decade
Source: https://fred.stlouisfed.org/series/MEHOINUSA672N
Source: https://sites.allegheny.edu/finaid/types-of-aid/
This Industry Insight was written by David W. Hoffmann.
David W. Hoffmann, CFP®, AIF® of H Financial
Management, is a private wealth manager based
in Southpointe serving the ever-changing financial
needs of his clients. Please contact David at H Financial
Management, 400 Southpointe Blvd., #420, Canonsburg,
PA 15317, Phone: 724.745.9406,
Email: [email protected], or via the
Web: www.hfinancialmanagement.com.
Securities offered through Triad Advisors, LLC, Member
FINRA/SIPC • Advisory Services offered through H Financial
Management.
H Financial Management is not affiliated with Triad
Advisors, LLC.
PETERS TOWNSHIP
❘
OCTOBER/NOVEMBER 2019
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