COVENANT BUSINESS PLANNING SOLUTIONS

College Education Funding

With the recent pay-for-play scandals in college education, we thought this would be a great time to examine the issue of college funding. What do you think the best method for funding your kids’ higher education is? Well, it’s probably not what you think!

There’s always a great debate on the best methods for funding your child’s higher education. Parents want their children to succeed and often, they believe that getting their kid into a premier college is the answer. Parents, as we’ve seen from recent headlines, are not above going to extreme measures to guarantee placement for their collegiate.

But a more important question might be - why should you pre-fund your child’s higher education? After all, your child may not be a college education candidate. There’s something to be said for so-called blue-collar careers and of course, your child will have many different avenues available to them should they choose a higher education. They might prefer a technical college or trade school, or a creative mentorship program.

Overall, there are many considerations for you and your child. You want them to have the opportunity to find meaningful work as an adult, to achieve great income potential and start their career without huge student loan debt.

Your first step is find out what career path your potential college student is most interested in, and most prepared for. Then, the next step is determining which education path will provide them with the best preparation for their career of choice. Sit down and have that conversation first.

Once those two decisions have been made, the next step is deciding the economic benefits of a pre-funded education account.  Be aware: in most cases, the account value is severely restricted to that person’s education only expenses.

Popular options include:

  •                         529 College Education Fund                       
  •                         Mutual Funds
  •                         Stocks
  •                         Bonds
  •                         Bank Savings (CD’s)
  •                         Home Equity Loans
  •                         Life Insurance

 

Knowing that the majority of college graduates never work in their area of education & many not graduate at all…should you tie up your valuable assets only for their education?

If a traditional four-year college is the best education path for your child, resist burdening them with exorbitant loans. Economically-speaking, one of the best options, in my opinion, is a home equity loan.  Instead of placing money aside for your child, you can pay down your home mortgage so that that it’s paid off in time for their college graduation.  While they’re in college, your child will apply for a traditional student loan. But the principle and interest are deferred until graduation, at which time you may take out an equity loan to pay off their student loans.

The worst case in this scenario is that your child drops out of college before graduation. Since they didn’t graduate, they can be responsible for the loans and you have a mortgage-free home.

 

For more information, please check out our other resources to see if this or any other strategy would apply to your financial situation, www.CovenantBusinessSD.com.