College Funding – How to Pay for College and Keep Your Money
College funding is an enormous expense. As a parent, you likely want your children to have the best possible education. And, whether or not you went to college, you probably want your kids to go. College funding is one of the most important family decisions you will make.
Unfortunately, many families will make the wrong decision. Sending a child away to college can also be an emotional and dramatic experience. If that time is over 5 years away, it’s smart to budget for the expense well ahead of time. If it’s coming up in the next year or two, you still have time, but you will have to get busy.
The checklist below will help you determine and itemize for the typical college expenses. You may also want to plug the numbers into our college planning calculator which we can help you with.
Educational Expenses
Tuition – Tuition is usually the single largest expense when it comes to college. Depending on public or private school, this amount can vary drastically. If the student will be attending an in-state public college it could be as little as a few thousand dollars per year or as much as $35,000 for out-of-state and private colleges. Schools generally require students to pay at least a portion of the tuition before classes begin. If you are looking into the future, you will also want to consider the impact of inflation on tuition costs.
Books – Book costs vary greatly depending on the school and the course. Larger hardcover books typically cost the most, often as much as $200 each. Typically you will want to budget at least $500 per semester for books.
Supplies – Supplies are a part of education. It’s a good idea to budget for a constant supply of pens, paper, notebooks, binders and other items such as calculators.
Computer – Computers are a way of life now, especially for college students. So, you’ll want to consider this cost as well. Students usually have access to computer labs, but hours and space may be limited.
Programs and Fees – Some programs may also come with extra fees for labs and/or equipment. This will vary with the school.
Living Expenses
Housing – Housing is usually the student’s other major expense and again will vary depending on your location. Colleges typically have student dormitories or housing that can save time and money. with a range of prices to suit most budgets. If your student lives off-campus, you’ll also have monthly utilities and other bills. And, there’s also the option of living at home and commuting.
Food – Food and meals can be a large expense as well. Most colleges today have prepaid meal plans that students can use on a debit basis, much like a debit card for meals they eat on campus. You will probably still need to budget for when your student daughter goes off campus or orders pizza. If they have special dietary needs, make sure the meal plan covers them.
Laundry – Laundry can be done on campus and most residences will a have coin operated laundry. You will also have to buy laundry detergent and supplies. As you know, this will be less expensive at the grocery store than from dispensers in the laundry room.
Phone – Cell phones are pretty much a requirement these days for college students. If you’ll be paying this bill, you’ll want to factor that in as well.
Internet – Internet services are typically provided on campuses today. Students may be required to pay a monthly fee for access to the wireless network.
Medical – Medical and dental expenses become an issue with students leaving home. Many schools cover insurance in their tuition costs if the student visits the on-campus facilities. If your student already has coverage, you may be able to opt-out of this coverage.
Other Expenses
Parking – Parking and/or transportation can also account for a major expenditure. Along with the vehicle there is also fuel and insurance costs to consider. Again, living on or near campus can reduce these expenses. Public transportation may be available and often offers student discounts.
Clothing – Clothes and fashion play an important role with students. Keeping up with the latest trends is important to most young people. You’ll also want to consider the climate as coats and boots typically cost more.
Entertainment – Entertainment expenses can vary drastically with the student. Depending on your students habits, this is one cost that can be reduced or practically eliminated by utilizing on campus programs and the internet.
From a college student… What is the true cost of college?
College Funding Options
Now that you have a good idea of what costs are associated with college, you’ll want to consider the best way to pay for them. What are your college funding options?
Many tax-advantaged plans have been introduced in recent years and marketed to the public. However, you should be careful when considering one of these plans.
Tax-advantaged savings plans are simply designed for college costs, therefore they have only one use. So, your money is only working one time and may actually have some negative effects. Tying your money up in a plan that has the goal of college funding may be admirable and well meaning, but can lead to lost opportunities and costs.
Some important questions to ask yourself:
1. How can I pay my child’s college costs and get my money back?
2. How can I guarantee my child’s education will be paid, even if I become disabled or die?
3. What happens if interest rates drop or tuition costs skyrocket?
4. What happens to my money if my child decides not to go to college or wants to attend an out of state school?
Most college plans simply do not address these questions.
College Opportunity Costs
The best use of your money is to have it work over and over again. Tying your money up in a college plan gives you only one use of your money, and once it is spent, it is gone forever. This creates a Lost Opportunity Cost.
How can you pay for college and still retain your money to use again? You should start saving for college early in your child’s life. An efficient and effective strategy for college funding would not include a pre-defined product. These products fail to realize the lost opportunity costs of these programs because they are focused on needs, rather than the use of money. In another words, do not put all of your eggs in one basket.
College Funding Strategy
An effective and efficient strategy would be to take advantage of every possible aid program, tax advantage, leverage technique and cash-flow strategy available. This will allow you to maintain control and effectively have multiple uses of your money. So, the best plan is actually a combination of products and strategies, not one product alone.
How To Use Permanent Life Insurance to Fund College
If purchased correctly, permanent life insurance is an excellent vehicle to fund college and recapture the costs over time. You probably won’t hear this from most financial gurus or your accountant, primarily because they do not truly understand how it works.
The “living value” of life insurance can actually come alive when used as a vehicle for college funding. If you acquired a whole-life policy on each parent when your child turned 5, you would have 13 years of accumulated dividends and cash values in the policies by the time your child entered college.
At that time, you could borrow against the policy, and there would be no income taxes due. If you became disabled, premiums would be paid (with waiver of premium). And since it’s life insurance, there a premature death would not disrupt the plan.
You would have multiple uses of your money and your money would be available to use over again, if you pay back the loan and practice infinite banking. You cash value would be available in the policy, and of course your beneficiaries would receive the death benefit at your passing.
Another approach may be to use borrowed funds from others, such as from a bank for college loans or expenses, and use the life insurance policy for collateral.
In either scenario, you are effectively leveraging your money and conserving your own asset pool. By the time you retire you could have a generous death benefit and the ability to use your money for other enhanced financial planning strategies.
Using Permanent Life Insurance to pay for college provides multiple benefits:
1. Tax deferral
2. Premature death protection
3. Disability protection
4. Creditor protection (possibly)
5. Financial aid (possibly)
6. Liquidity without penalty
7. No market fluctuation
8. No income taxes
9. Enhanced retirement planning
10. Elimination of lost-opportunity cost
Other financial products can not provide all of these benefits. If you start college planning while your children are young, whole-life insurance is a superior strategy when combined with other assets. Other permanent policies may offer higher returns, but also provide risk.
If your children are 14 years of age or older, other strategies and products become more important. These may include a mortgage, home equity line of credit, 529 college savings plans, Coverdell Education savings plans, Uniform Gift to Minors Act, U.S. Savings Bonds or government bonds. If funded correctly, whole-life can still play a major role though.
Remember, the goal is to retain use of your money and use leverage. You should use your money as collateral and pay back the loan with earnings on your money, not the principal. Take all the tax deductions you can and use inflationary dollars over time to pay back the money.
If you do your research, you will find that few savings plans can promise you all of this. Fortunately, there is one that can, it’s called Whole-Life Insurance. And, nothing else offers you the tax advantages, the guarantees, and the ability to control your money even after your death. You owe it to yourself and your family to explore the uses of life insurance.
Learn more about the uses and advantages of Life Insurance with a free financial analysis from Legacy Insurance Agency. We’ll help you to understand the facts about saving for college with no pressure and no obligation. Contact us for a financial consultation today.
Until next time,
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Barry Page, RFC
Barry Page, RFC is recognized as a leading expert on finance, life insurance and private banking. He is a financial consultant and independent life insurance agent who helps clients with tax advantaged investment alternatives. He specializes in showing families how to protect their assets, income and lives utilizing a macro-financial approach to planning.