Paying for College: 5 Steps to Take Control
By Joe Messinger, CFP®
July 21, 2023
In Ohio alone, there are 1,794,000 student loan borrowers owing approximately $62+ billion in debt. The average borrower owes $34,721. These numbers don’t lie – it’s clear that paying for college is at a real crisis point, but hardly anyone seems to have a solution. Researchers, professionals, and reporters only ever discuss the problem of student debt.
Take this quote from a spokesman for the Attorney General:
“…the key for students and their families is to find ways to borrow less money for college.” He went on to say, “If you take out less of a loan, it is easier to make loan payments on the back end when you graduate.”
We know he means well, but for most families, this statement–“simply borrow less”-provides no solution. We’re here to help you create an actionable strategy to tackle paying for college that addresses your unique financial needs. Ready? Let’s dive in.
Leveraging Tax Deductions and 529 Plans
Did you know that you can leverage contributions to the Ohio 529 Plan as a tax deduction?
You can deduct up to $4,000 per beneficiary, per year, for contributions made to the Ohio 529 Plan. This deduction can help encourage families who can afford it to save more toward education costs, all while lowering their tax bill.
(As a reminder, your 529 contributions are not capped at $2,000 or $4,000. These amounts are the maximum you can deduct on your state taxes.)
Save What You Can
While tax deductions and other fringe benefits are nice to have, it’s essential to look beyond them to determine what, exactly, your family can save toward college costs. The earlier you start, and the more frequently you contribute to your 529 Plan or other college saving fund, the more likely you will successfully offset the cost of higher education.
Most families will not be able to save enough to pay the entire bill. We understand. But every bit will help.
Take advantage of the tax-deferred benefit of 529 plans. Understand how they work and how you can use them. (Check out a previous blog for 11 secrets you might not know.)
Learn What You Can
Create a Strategy for the Whole Family
Pull all the pieces together into an all-encompassing plan that accounts for your kids and your other long-term financial goals. This includes:
- Ways to earn college credit before college starts: Advanced Placement (AP) and International Baccalaureate (IB) courses, College Credit Plus or Dual Enrollment coursework
- Assets: How much can you save? Do grandparents want to gift money?
- Scholarships: Students need to understand the impact of their grades and test scores on financial aid offers.
- Grants: Will your family be eligible for need-based aid?
- Cash flow: How much do you spend on your child each month? Can that monthly amount be used for college?
- Tax credits: Use those that apply to your situation.
- Student loans: Prioritize federal loans over less flexible and frequently more costly private loans. Use loans only to cover any gap. Remain aware of the total 4-year loan amount you are going to incur. We always recommend a debt amount not exceeding the expected first year’s salary after graduation.
Think About Affordability
The best college fit for your student has to include a price you can afford, with a student loan debt amount after graduation that your student can manage. The results of too much student loan debt include being unable to save for retirement, a home, or their children’s education. And the dreaded “boomerang” back home to your basement.
If you want to know more about colleges’ actual “sticker price” and compare the costs of your top schools, we recommend leveraging our College Money Report™. This report will help you determine the costs of your top schools, your expected family contribution, and whether you qualify for scholarships, grants, or other types of financial aid.
If you are having trouble, consider working with an expert. Sometimes you need help from a trusted advisor. With a strong plan in place, paying for college will not get you in over your head with debt. Take control and have a plan by contacting us today.
Updated July 2023
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