Dear College-Concerned Parents:

My name is Ray Loewe. I am the founder of College Money, a “Chartered Financial Consultant,” Chartered Life Underwriter, Wharton School MBA graduate, and a specialist in the complex field of paying for college. For more than 26 years I have helped families in delivering the dream of college to their children without destroying the funds they are saving for retirement.

Of course, every family is different, but paying for college is a problem they all share. College planning is different. We all have to deal with taxes every year and gain a certain level of expertise with it over time. But college planning is generally faced once and usually not very well. Even many financial advisors don’t have much expertise with college planning.

Because of this, many parents make mistakes that cost them financial aid dollars, or limit their planning options. Here are some of the mistakes to avoid:

• Not planning college savings and retirement savings together –College and retirement are inextricably linked and need to be addressed at the same time. Remember, if you are unable to save enough for college, you may end up creating a retirement problem. If you have adequate retirement funds put aside, then taking loans to pay for college may not be as catastrophic.
• Underestimating college costs and the effect of college inflation – When families begin saving for college, it is critical to have a good grasp on “real” college costs. Lists of colleges published in magazines are often misleading because they only show tuition and fees. Some might also include room and board. But what they neglect to tell parents about are the other costs, such as personal expenses, transportation, books, etc. Savings goals need to be accurate if parents hope to save what they need.

For over 20 years, college inflation has outpaced regular inflation to the tune of 2 to 1. That means when parents save for college, they need to target a rate of return that can enable them to keep up with college inflation, otherwise they will have to save much larger sums of money.

• Starting too late – Over the years we have met many parents who come to us when their student is a junior in high school and they brag that because college is important to them, they are getting an “early” start. Unfortunately, waiting until junior year can be devastating – there is little to no time left to save – parents have lost financial leverage or they have limited their options. On the other hand, some parents think it’s too late to do anything. But it is never too late to start planning for college. The choices are different, however, depending on how far away the college years are. In either case, don’t make the mistake of thinking there is nothing that can be done.
• Making assumptions about financial aid – Some parents think they’ll never get financial aid so they direct their children to less expensive colleges, when in reality they would have qualified. Often, the more expensive college that gives financial aid can actually be less costly. On the other hand, there are parents who assume they will qualify for financial aid, they allow their children to apply to expensive schools, and then have to disappoint them by telling them they cannot go because the family didn’t get any aid and can’t afford to send them there.

Having a professionally calculated Financial Aid Test is a key step when doing any college planning, whether for a crisis situation or a long-term savings situation. The professional understands how the system treats different types of assets, and knows how to use the results of the test to craft a plan that takes the four different types of financial aid into consideration.

• Not utilizing ALL family resources – consider creating a Family Scholarship Plan™ to save for college. This is a two-part process. First, it is important to weave a plan that uses the tool or tools that will provide the most benefits to the family. The next phase is to incorporate other family members. Many grandparents, aunts, uncles and friends are willing to help out by making occasional gifts to a college fund.
• Choosing the wrong college – Choice of college is important on many levels. Of course it has to be the “right” fit for the student. But it is also a major investment and parents need to put the college selection list through a financial filter. Understand what you want to gain from the college education – College is often more important that simply the knowledge gained in the classroom. It is a time for students to begin the process of becoming independent. Equally important is the contacts your student will make. Many careers are built on contacts from college days. Don’t discount the value of networking.
• Not discussing finances with your children – We have had parents who were forced to tell their student that after they have worked hard and been accepted to the expensive college of their choice they cannot go because they can’t afford it. By sitting down with your student before he or she starts building their list of colleges and having a frank discussion about what the family can afford, you can guide them to appropriate choices.
• Not utilizing all three college funding periods – There are three college funding periods
  • the saving period – This is the time from now up until the first child starts college. Savers can take advantage of compounding growth to build a healthy account to pay for college.
  • the spending/borrowing period – This period begins when the first student enters college. Parents will spend down what they have saved, try to squeeze additional funds from current income, and often, end up borrowing to make up the difference.
  • the recovery period – This is the period between the graduation of the last student and the time the parents want the education loans paid off – usually by the time they retire.

Parents who don’t save have lost that phase and can never take advantage of it again. Consequently they have put all of the pressure of paying for college into the spending/borrowing period and the recovery period. This is usually the cause of the retirement problem.

• Not planning for change – Planning for college is a dynamic process…it changes all of the time. The government, colleges, your employer, even your own family choices can drastically change your college plan. You must monitor it regularly to make sure it still meets your family’s needs and make adjustments and changes when necessary.

If all this seems a mite overwhelming, take heart! A College Money program or plan can guide you through the intricacies of a successful outcome. An experienced College Money Professional can assist you one-on-one. We have helped thousands of families just like yours. We can help you! Here is How to Start Planning.