Ok…We’re getting a little thoughtful today. Consider this. The Oxford Dictionary defines “paradox” in part as “a statement or proposition that, despite sound (or apparently sound) reasoning from acceptable premises, leads to a conclusion that seems senseless, logically unacceptable, or self-contradictory.” To qualify for need based financial aid, students obviously must demonstrate “need.” However, the reality is that parents are in their peak earning years when their kids are heading off to college. The timing is all wrong. When families NEED financial aid at the time of sending their kids off to college, they don’t really “need” the money in the eyes of those awarding aid.
Think back to when your clients were having babies.
Wouldn’t it be nice if your clients could determine financial aid need when they were just having babies?! Parents in their mid-20s have higher debt, perhaps paying off their own college loans. They are just starting out in their careers with lower salaries and higher child care costs. Parents are just trying to survive probably living paycheck to paycheck. If we could calculate your client’s “need” then, they’d probably qualify for financial aid.
But it doesn’t work that way.
Now jump forward in time, and your client’s debt is mostly gone. Salaries are higher. They have saved more for retirement and college (hopefully). When calculating the Expected Family Contribution all the following are included in the formula for your clients and their students:
- Taxable income
- Cash, savings, and checking account balances
- Net worth of investments (Does not include retirement accounts, but does include money saved for college.)
These figures are probably at the highest they have been now that your clients have reached their mid-40s. Now is not the most favorable time to be calculating financial need.
What can they do?
Hoping for scholarships is not a strategy. They need to have a detailed plan that minimizes student loans. Planning for how to pay for college needs as much attention if not more than planning for how to pay for retirement. Your client’s employer is probably helping them save and pay for retirement with a 401(k) with a company match and in some cases a pension. The runway to save and eventually pay for college is short and the start date cannot be delayed like their retirement can. Once college starts, your clients are going to get a bill for upwards of $75,000 for 4 years that they have never had before. How will they actually pay the bill? Don’t let them bury their head in the sand. The bill is coming like it or not. Help them seek out understanding on their own or consider investing in the services of a well informed and ethical college funding professional.
Make sure they have the money conversation with their student so they both have a clear plan for what they can afford and how they will get there. Understand which schools will offer tuition discounts regardless of their financial need. Be sure they pay attention to cash flow and include that in a pay as they go strategy. Have them encourage their students to help in whatever way they can to minimize student loans. Teens that can contribute $2,500 per year by working could save $10,000 in four years. Use student loans wisely! They should find a trusted resource to provide them with sound guidance. In the end, they can fulfill their needs even though they don’t appear (in the eyes of financial aid) to have any. With careful planning, their child can graduate with minimal student loan debt without robbing their retirement.