What is Comprehensive College Planning?
What is Comprehensive College Planning?
Planning for college has drastically changed since many parents have gone to school. Among the reasons for change are technology, new majors, rising cost of tuition, and the growing level of student loan debt in our country.
Many parents are currently caught between paying off their own college debt, financing their children’s college dreams, helping their aging parents, and saving for retirement. There is no doubt that many families feel financially strained.
How Cox Collegiate Planners Can Help Solve the Growing Student Loan Crisis.
Cox Collegiate Planners was founded on the idea that there is a better way to plan for your child’s education. We do not accept the premise that students must borrow large amounts of student loans to pay for their college education. Instead we aim to show families how to shop for schools that meet both academic and financial needs.
Planning for college happens in three stages.
Combining all three stages creates a comprehensive college funding plan.
What is a Comprehensive College Funding Plan?
Melissa Cox CERTIFIED FINANCIAL PLANNER™, helps your family take inventory of your current financial situation, and works with your family to attempt to set realistic goals and expectations when shopping for college.
By examining your current financial situation, Melissa is able to determine your family’s estimated Expected Family Contribution. This allows families to know the amount that they will be expected to pay for schools and create a budget for college.
Creating a College Budget is much like being pre-approved for purchasing a house. This becomes very important when trying to decide how much your family is willing to borrow in student loans, and
Step One - Determine Available Resources to Pay for College
Step One of the Comprehensive College Funding Plan is to determine the available assets and cash flow that can fund your child’s education. Mainly, what has been saved in Stage 1 - Saving For College?
We examine the available resources including 529 education accounts, and investment and savings accounts owned by parents and students. We also examine cash flow. While children are living at home before high school graduation, there is a monthly cost to them living at home. Often, the monthly costs are partially reduced when children graduate and go to college. In addition, once a child turns eighteen and is in college, you can no longer put money into a college savings plan. Therefore we can create available cash flow to help us fund the cost of college.
Now is also a great time to get grandparents or family members involved in college planning. Receiving the help from outside family members can be a true blessing! Be aware that proper planning of any extra assistance requires advanced planning, because payments made directly to a school could negatively affect the student’s Expected Family Contribution.
Step Two - Determine An Acceptable Student Loan Amount
The current level of student loan debt in the United States is $1.6 Trillion spread among forty-five million Americans. As of 2017 the average debt per person was $37,172 with the fastest growing age bracket of borrowers being 60 and older. In fact 73% of Americans 60 and older are borrowing money in their name to fund their child’s education.
As a Certified Financial Planner, I firmly believe that step two can have the biggest effect on a family’s financial future. Talking about an acceptable level of student loan debt is important when shopping for college. College is an investment, and assuming large amounts of debt to accomplish the goal may not be the most effective strategy; especially when there are over 5,000 accredited schools and colleges in the United States.
An acceptable level of debt can vary from student to student. It will largely depend on education goals as well as earning potential. Is your student looking to earn a Masters, Doctorate, or become a Lawyer or Physician? When taking the education goals into account, your family might decide to save money on earning a bachelors at a more affordable college.
Analyzing your Earning Potential
A general rule of thumb is to expect to repay approximately $100 a month for every $10,000 borrowed. A borrower with $30,000 in debt can expect a minimum of $300 a month in loan repayments.
When determining an acceptable level of student loan debt, you should look at your earning potential. What will your starting salary be for your chosen profession? What are your approximate living expenses? Will you have enough money each month to pay for living expenses, student loan repayment, retirement savings, and taxes?
I recommend that students not borrow more than they can earn in their starting salary upon graduation. Studies show that the stress of high student loan payments and the long repayment times of 10-30 years, can significantly delay a graduate’s financial life. Graduates are delaying getting married, starting families, and saving for retirement because they struggle to balance saving and paying back their debt.
Borrowing Student Loans for Your Children can be Risky.
As a parent I understand the desire to give your child their heart’s desire. I also caution parents to consider their personal finances before signing or cosigning for student loans.
The highest growing age bracket of borrowers is 60 and older. The same group has become the fastest growing bracket to default on student loans, because many parents are on a fixed income when transitioning into retirement.
Student loans borrowed by parents are the legal obligation of the parent. Students could potentially make the payments for the parents. However, if the student graduates and cannot afford it the parent must meet the payments or risk their personal credit history.
Know before you go if parental financing is part of your family’s college funding plan, and make plans to get the debt taken care of.
Create a plan for your Student Loan Debt Before you Borrow.
Create a plan to pay off your debt, if you must borrow student loans to fund your college education. When shopping for a college, you should take into account the same standards as purchasing a car or new house.
In order to buy a house or a car, you must be pre-approved by a lender. The bank wants to know that you will be able to repay your debt, and that the recurring payments fit into your budget.
Borrowing money for college should also be pre-approved. College Bound students are making one of the biggest purchases of their young lives, and often do not have a lot of financial experience. Before you borrow, create a personal budget and determine your monthly repayment limits.
A personal monthly budget will include all the needs and wants. Students will now need to consider things like living expenses, taxes, “wants”, medical expenses, debt repayment, and saving for retirement. This is a great exercise in determining if student loan debt fits into your monthly budget or help determine if it will it create a financial strain
Step Three: Shop for Schools that Meet Both Your Educational and Financial Goals
Traditionally, college planning has started with step three. You select a school, and then scramble to decide how to pay for it. The problem with this is that a reactive approach to paying for college has created the massive student loan crisis.
There is a better way.
Once you have determined your available resources and set an acceptable borrowing amount, it’s time to shop for schools that meet your family’s needs. With the help of a College Funding and Student Loan Advisor, your family can find schools that will fit into your financial plan and not sacrifice your family’s financial future.
How Cox Collegiate Planners works with Families to Create Comprehensive College Funding Plans
At Cox Collegiate Planners we focus on creating a proactive plan to pay for college. We encourage communication within families around selecting and paying for college. Communication around college planning helps to manage expectations and emotions.
Using software from College Aid Pro™, we are able to sort through thousands of schools in the United States to find schools where there is potential for merit or need based financial aid. During the search we can determine the 4 year net cost of tuition, and begin the discussion about funding options.
Knowing the approximate 4 year costs of a school can help eliminate visiting colleges that will not fit into your family’s college budget. Schools rely on students falling in love during campus visits, and offer little guidance on how the school might affect finances. Smart college shopping means knowing what is affordable ahead of time, and purchasing the college that best meets your educational and financial needs.
Together, we can do this and I look forward to meeting with you to create a comprehensive college plan for your family's future.
Melissa Anne Cox CERTIFIED FINANCIAL PLANNER™ is also a College Funding and Student Loan Advisor, and Financial Coach in Dallas, Texas.