As summer begins to heat up here in the Midwest, it is around this time of year that I normally have a number of conversations with both parents and grandparents about how to pay for college. Sure saving money, borrowing money, and pursuing financial aid are the most obvious ways to pay for college. The problem with these methods however is none actually attempt to lower the cost of college. First let me state the obvious, if funding college is part of your plan, there really is no substitute to saving and the earlier you start saving the better. Why you might ask? Well because college is expensive. Just take a look at these numbers. For the 2016/2017 college year, the average annual cost of attendance at a four-year public college for in-state students is $24,610, and the average cost at a four-year private college is $49,320. The cost figure includes tuition and fees, room and board, books and supplies, transportation, and personal expenses. (Source: The College Board’s 2016 Trends in College Pricing Report.) Many private colleges can cost substantially more. Yet as college costs continue to grow, in addition to saving early, it is becoming imperative for many families to find ways to lower the actual cost of college. Here are four creative ways to lower the cost of college, which, in turn could help you lower your own costs.
1) Consider a community college for the first two years: Many students choose to live at home and attend a local two-year community college for basic level courses and then transfer to a four-year school for their final two years. In nearly all cases, the community college will be less expensive than the four-year college and can save you money for two years. The benefit is that your child can still receive a diploma from a four-year college even if the first two years were spent at a community college. Of course, you should make sure that the four year college that you plan to attend will give you credit for the community college courses. The downside is your child may miss out on what is known as the “college experience”. You and your child will have to factor in how much that is worth. For some students, early college friendships can be the strongest bonds and may turnout to be very attractive connections after college. But is it worth the cost?
2) Accelerated programs – (go year round): If the college allows it, your child may be able to obtain a bachelor’s degree in three years instead of four. Typically there are some courses that are offered in the summer that can go towards the overall count. By going this way, you will be able to save a year’s worth of non education expenses like housing. The drawback to this approach is that your child will have to take a heavier course load each semester and may have to forgo summer breaks.
3) Advanced programs: Your child may be able to earn college credits for basic courses before he or she even gets to college. This is accomplished by taking courses or tests designated as advanced placement (AP) or as college level exam program (CLEP). Many public and private high schools throughout the nation provide this option. Going this route could save money by cutting down on the required college course load. Many 100 level courses (especially in core areas like English, Science or Math) can be accomplished prior to even setting foot on a college campus. Many high schools have strategic relationships with local or even national universities. It is important however to make sure that your prospective college will accept the test or course credit before your child takes it.
4) Part-time work: Part-time work can help your child defray some costs while in college, and thus reducing the amount necessary to borrow. However, working during school can be both a physical and an emotional strain. One option might be for your child to focus on school for the freshman and sophomore years and to find a part-time job for the remaining years. Additionally, it could be helpful to encourage your child to focus on finding a part time job in a field close to what they envision as a career. For example, if you have a future nurse on your hands, encourage your child to apply at every hospital, clinic and senior care center around his/her college. This can provide a good first step into what the “real world” will feel like in the future when they are in their career of choice. It is usually best to find a part-time job that will help boost a resume as well as build valuable future connections.
We have had some great questions from clients this month. Below are three that we thought were worthy to share.
1) I really need more term life insurance, but I have had health issues and I am concerned about getting approved. Do I have any options?
Yes there are options however it just depends on how serious your health issues are or were. The first place we would start would be to find a good agent who works with many different life insurance companies. Not all insurance companies have the same underwriting standards. Some companies may look at your specific health issues different than others. That is why it is important to have an agent that can work with many different companies. If the health concerns are such that you are not able to be approved, you could look into options through your work. Some employers (usually larger companies, but not always) offer the option to purchase additional term life through their group plan. Sometimes you can purchase insurance up to a multiple of your current annual salary (like 3 times your salary) without medical underwriting. The lack of medical underwriting is the key if you have had health issues. It is possible that your cost will be higher if you go through your employer versus the individual route (especially for those in excellent health), but at least it is an option.
2) Should I withhold federal taxes from my IRA distribution or social security payment?
Usually we suggest that clients do withhold for taxes, however it really depends on your overall situation. Regardless of whether or not you withhold for federal taxes, at the very least we advise that you have a plan for how you will pay any tax due on retirement income. Usually you can expect that IRA distributions will be fully taxable for federal tax purposes. On the other hand, social security taxation is a little more complicated. For most people, 85% of social security income is taxable at the federal level, however there can be certain situations where no social security income is taxable. For some, electing to withhold a certain amount from your payments when you receive the income can be a good way to ensure that you have accounted for the tax burden to come. You could also make estimated tax payments rather than withholding the tax from your income if you so choose. Whatever route you go, just make sure to have a plan. Otherwise you could be hit with the nasty surprise of a big tax bill due when it comes time to file your taxes.
3) I have some extra cash flow coming in, should I use it to pay off my mortgage?
Great question. If I had a dollar for every time I was asked this question I would be a rich man. It really is a personal decision, however here are some discussion points that I usually mention when I get this question. First, it depends on what rate of interest you are currently paying on the mortgage. Is the mortgage rate lower than other debts that you have? If so, it seems that paying off other debts before the mortgage would make better sense. Another item to think about is your emergency fund. Do you have enough funds set aside in case of an emergency? If not, perhaps you should fill up your emergency fund with your extra cash. Remember the bigger the family, the larger the emergency fund that is needed. Also, do you have a retirement plan at work? If so, are you currently contributing enough (as a percentage of your income) to get the maximum employer match? If not, you might consider contributing enough to get the match before paying down the mortgage. Lastly, it can be helpful to think about how long you plan to be in the house as well as whether or not you are able to itemize the mortgage interest you pay when you file your taxes. All of the above should be considered when trying to decide whether or not to pay extra on your mortgage. Unfortunately there is not a one size fits all answer to this question.
In an effort to keep clients and friends in the loop Cambridge is getting social, media that is. You’ll notice the various social links below, please like or follow us on whichever channel you prefer. Our goal is to provide you with timely information whether it is via our blog or social channels. We’ll try our best to keep you updated as best that we can.
© 2019, CAMBRIDGE CAPITAL MANAGEMENT, LLC. ALL RIGHTS RESERVED. THESE MATERIALS WERE DEVELOPED FOR INFORMATIONAL PURPOSES ONLY AND DO NOT TAKE INTO ACCOUNT YOUR INDIVIDUAL NEEDS, FINANCIAL OR OTHERWISE, AND SHOULD NOT BE RELIED UPON BY YOU WHEN MAKING ANY PARTICULAR FINANCIAL RELATED DECISIONS. THE INFORMATION HEREIN WAS DERIVED FROM SOURCES DEEMED TO BE RELIABLE BUT HAVE NOT BEEN INDEPENDENTLY VERIFIED, AND NO REPRESENTATIONS OR WARRANTIES ARE MADE WITH RESPECT THERETO. SOME INFORMATION IN THIS ARTICLE COULD HAVE BEEN DERIVED FROM BROADRIDGE INVESTOR COMMUNCATION SOLUTIONS, INC VIA OUR PAID SUBSCRIPTION FOR THEIR SERVICES. ANY INFORMATION FROM BROADRIDGE IS SPECIFIC PROPERTY OF BROADRIDGE.