The 6 Critical Financial Steps to Paying Less for College
Updated: Feb 22, 2018
I know the situation you're in. You did your level best to save for college. Many people -- maybe even a financial advisor or insurance salesperson -- told you to start saving for college as soon as your child was born. I'm sure your parents did. You started to stash some money in a 529 plan (ideally) or maybe you took out an absurdly expensive whole life insurance policy (not ideal).
Then maybe you had another kid. And then another. Maybe you lost a job along the way during the financial crisis. Maybe your furnace went out, and then your water heater needed to be replaced. I get it.
Life happened. It's supposed to.
And now we're at present day, and you have a son or daughter getting ready to go to college. Maybe it's not your first to go off to continue their education, and maybe you have several more behind the oldest that are going to go through this same process. It causes a ton of anxiety and stress, and can be exhilarating and satisfying just as it is crushing and disappointing.
The most obvious and pressing question on your mind is...
You're not alone. Even the financial professional sitting on the other side of this computer has that question spinning around in his head almost all of the time.
Regardless of what your situation is on being prepared for college, there are 6 very critical steps that everyone needs to check off before their kiddo heads off on their journey and the next step in their lives.
I don't care if you have the entire cost of college set aside for each of your kids, their grandparents are planning on paying for everything, or you have very little saved...I very much emphasize that EVERYONE needs to pay attention to these steps to be properly prepared financially for one the biggest expenses they'll amass in their lifetime.
Step 1: Get Organized and Prepare for the Cost | Freshman/Sophomore/Junior Year
First things first, you need to get yourself organized and understand exactly what resources you are going to use to pay this expense and you need to understand the proper order you are going to use them in. Some of you will have many resources, others very little.
Ideally, this is something that you will start to get a grasp on when your child is in 8th grade or during their Freshman year. Understand your assets that you have to help pay for college and where that money is coming from. From there, as your young man or woman is heading into their sophomore/junior years, we need to check off the following:
Create a plan and a budget - COLLEGE PRE-APPROVAL™ Process
Develop your criteria for the ideal college experience
Create a list of 6 to 10 colleges to target
Project your EFC, or Effective Family Contribution
Determine the "net cost", or out-of-pocket cost, for each of the institutions based on merit aid and need-based financial aid
Assess different financial strategies to improve your situation
Your EFC is the estimated amount that your family can contribute toward your education. It’s calculated using the information from your FAFSA, including your parents’ income, investments and other assets, as well as the number of people in your family and whether any of them are also attending college that year. You’ll see your EFC listed in the upper right corner of your Student Aid Report, as long as your FAFSA was completed in full. ~NerdWallet
Step 2: Apply for Admission and Scholarships | September to November of Senior Year
At this point, whether you're a do-it-yourselfer or you hired a financial planner to help you strategize, you should at least feel more comfortable knowing where you stand. More importantly, you should have been empowered to have honest conversations with your kids to help them understand what type of investment is being made on their behalf.
As their senior year is kicking off and they're worried about Homecoming and the football team, you are shifting step 2 into high gear and should be thinking of and checking off the following:
Determine which of your target schools accept the Common Application
Meet all application deadlines for target schools
Prepare and submit all institutional and private scholarship applications
Gather letters of recommendation
Secure transcripts to be submitted with your applications
Utilize any advanced tax strategies available to prepare for your "Base Year", or your "Prior-Prior Year"
Step 3: Apply for Financial Aid | October of Senior Year
A tricky concept from Step 2 is preparing for your "Base Year" or "Prior-Prior Year". What this is referring to is your tax return you file for the year when your child was a sophomore in the spring and a junior in the fall. This is the tax return that the financial aid system, or FAFSA, will utilize to determine your eligibility for aid.
Of all of your steps, Step 3 is one you need to make sure you don't miss.
Apply for a CSS Profile
Avoid mistakes and have a professional review your FAFSA/CSS Profile forms for accuracy
Meet priority filing deadlines for each specific college application
Begin the process of calculating additional funds needed for college
Step 4: Analyze and Appeal Financial Aid Offers | March of Senior Year
Signed, sealed, and delivered. You applied for financial aid through FAFSA, and spring break is on the horizon. Acceptance letters and, more importantly, the financial aid letters from the different institutions are starting to hit the mailbox.
Review Award letters from each college
Determine the strength of the merit-based and need-based aid that is awarded
Decide which Award letters, if any, warrant an appeal
Leverage competitive offers from other schools
If there are additional circumstances that have come up or were missed by the colleges, make sure they are notified that the financial aid package may need a review
Step 5: Choose the Right School and Accept Your Award | April of Senior Year
Oh, sweet relief! Fire up the iPhone cameras and dust off your Facebook account...it's time to start to show off and let everyone know where your child is headed to continue their education and where your money is going for the next 4 to 6 years!
In all seriousness, the perfect solution will rarely be achieved, but the best solution for your child and your household finances will be at your fingertips if you go through this process step by step - and that's more healthy for everyone in the end.
Analyze the cost vs. benefit for all of the "finalists"
Determine the best fit both academically and financially
Step 6: Analyze Strategies to Cover the Shortfall | May of Senior Year and Ongoing
Your time to celebrate with your kiddo is over almost as quickly as it began. They get to start planning all the fun stuff, like what furniture they need to buy for their dorm room, and you get to go back to the financial spreadsheets and start to figure out how you're going to pay for all of this. While it probably seems like you should have more time to celebrate, you have more important things to take care of. Like paying for college.
Determine the best strategy for income, assets, and taxes
Seek advice on distribution from investment and savings accounts - timing matters!
Identify tax credits and deductions you're eligible for
Properly coordinate the contributions from other family members (if necessary)
Evaluate the different types of loans available and make sure to choose the best option for you and your child
You can do this!
Planning for college (and retirement, by the way) is not easy. It takes coordination and research. It's also not a task that can be done one evening in front of a computer. It's a multi-stage process that takes many years. And, maybe most importantly, it should be collaborative with your kids. This is a great opportunity to teach them important finance-type things like investing and taxes...exciting!
If you have young children and feel a sense of relief that this is still a long ways off, don't be complacent! Start saving for college in a 529 plan now! If you're already saving, save more!
And finally, understand that preparing for college expenses is much more than saving money in a 529 plan or having a whole life insurance policy with cash value at the ready. There are a quite a few incremental, and vitally important, tasks that need to be completed along the way. These 6 steps will serve as a pretty good guide post.
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Understanding Your FAFSA Student Aid Report and EFC - by Kelsey Sheehy