Planning for children without sacrificing retirement plans
By Peter “Coach Pete” D’Arruda
Capital Financial Advisory Group, LLC
“The easiest way to teach children the value of money is to borrow some from them.” — Anonymous
We had the “beatniks” of the 1950s, the “hippies” of the 1960s and the “yuppies” of the 1970s. Now we are seeing something called the sandwich generation emerge. This group finds itself in the awkward position of preparing kids to leave the nest, taking care of elderly parents and trying to plan for their own retirement.
Studies conducted by the Pew Research Center confirm that as of 2012, roughly one out of every eight Americans aged 40–60 is still caring for both their children and at least one parent. United States Census Bureau statistics indicate that the number of older Americans (over 65) will double to more than 70 million by the year 2030. It is not uncommon for baby boomers to be caring for one child at home, putting another through college and looking for a nursing home for one or both of their parents.
Paying for college
Providing our children with a college education is part of the American dream, but American parents are getting a bad case of sticker shock when confronted with the cost of higher education. The cost of attending a four-year private university is now more than $37,000 per year. That includes tuition, fees and lodging. Four-year public universities cost more than $18,000 per year. The average cost of attending a two-year public college has now reached $14,000 per year. The killer is that costs are increasing by about 8 percent per year. The fact remains, however, that getting a college education is essential for most to pursue the American dream of getting a good job, owning a home and raising a family. So, even though the cost of a college education is high, the cost of foregoing it is even higher.
In order to help pay for their education, students are taking on debt loads that would have been unthinkable when their parents went to school. Nationally, student loan debt topped $1 trillion in 2011, eclipsing credit card debt for the first time. Just as there are retirement planning strategies that can save thousands of dollars, there are strategies that can save thousands when it comes to paying for college.
Many think that financial aid is only for needy families. Not true. As a financial advisor, it pains me greatly to see how much money slips through the hands of students and their parents because they don’t know how the system works. By not helping their children take advantage of grants, scholarships and financial aid, some parents unknowingly forfeit their security in retirement. More than $125 billion in financial aid is distributed each year and, if you are sending kids to college, some of it may have your family’s name on it. In theory, the federal financial aid system is based on need, but in practice and in reality, you don’t have to be needy to get it — you just have to know how the system works. Don’t think it's welfare. It’s your tax dollars at work. Your congressmen and senators have put the rules in place by which you can obtain it. Federal financial aid comes in many varieties. Nearly 70 percent of student financial aid is provided by the U.S. Department of Education's Federal Student Aid (FSA) program, and consists of grants, loans or work-study programs.
Grants don’t have to be paid back, and they are a great way to help pay for college. Grants can come from private organizations, such as churches and civic groups; they may be awarded by professional organizations, seeking to advance their cause in the world; and they may even come from the educational institution itself. Yes, the school charges you on the one hand, but offers you a way to pay on the other. And, of course, state and federal governments offer grants. These grants may be awarded based on a student’s race, religion, special interests, or his or her financial need.
Sadly, billions of dollars that are available in grants from both private and government sources go un-awarded because people don’t know how to apply for them. We live in a paperwork world, and just saying the word “application” makes us flinch. But many of these applications can be filled out online. If you are somewhat computer savvy, just throw a few key words at your favorite search engine, and you will come up with thousands of sites containing information on how to apply for these grants.
Those good grades your kids are getting in high school could be worth thousands of dollars when applying for college. Educational institutions look at grades and standardized test scores in their admissions process, but that’s not all those scores and grades are used for. They are also considered when colleges and universities make financial aid decisions. Just 10 points higher on an SAT score could be worth thousands of dollars. Why? Universities are businesses. They want students with high test scores, and they are willing to compete to get them. How? By offering students better financial aid packages. Money spent getting tutored for the SAT or similar standardized tests is money invested.
When families are deciding what university their children will attend, they often make the incorrect assumption that the pricey private schools are beyond their reach. It may surprise you to know that many of these schools have increased their aid budgets, and some so-called elite schools are less expensive than public universities. There are websites now that will give you a complete rundown by school of both cost and offsetting financial aid. It pays to shop around.
Getting your family’s fair share of the billions of dollars in merit aid on the table comes down to the scholastic performance of your children. Colleges compete for “A” students by giving what amounts to discounts off of their sticker price. It is not unusual to visit a school’s website and find what amounts to an advertisement offering small scholarships for academic performance. One school, in order to attract high performers from other universities, offered what they called a “Transfer President’s Scholarship” — $7,000 for students who “distinguished themselves” in either college or high school. This school left open for discussion what it meant to have “distinguished” oneself. That means they will review the applications and take those they want. Other colleges will spell out the criteria, such as a “$4,000 Provost Award” for students who graduated in the top 10 percent of their class or who have a GPA of 3.75 or better.
The point is, scholarships are out there. You have to look for them, and compete for them. There is no limit to how many small scholarships you can obtain. Every free dollar helps when it comes to paying for education. Some crazy scholarships we have seen include:
- Civil War veteran scholarship: $1,000 if you are a descendant of a veteran of the Civil War. You have to write an essay.
- Extreme sports scholarships: One school offered $8,000 based on skateboarding skills.
- Tall person scholarship: $1,000 if you are male and over 6’2”, or female and 5’10” or taller. You have to write an essay on “What Being Tall Means to Me.”
- Potato scholarship: The National Potato Council annually awards one $5,000 scholarship to a graduate student pursuing Agribusiness, which enhances the potato industry.
- The American Fire Sprinkler Association Scholarship – Compete for $2,000 by reading an essay about fire sprinklers and taking a 10-question test.
- Bowling scholarship: The United States Bowling Association offers a number of scholarships to bowling fans, with dollar amounts ranging from $1,000 to $2,500.
- Star Trek scholarship: If you are an active member of the Starfleet Academy (a club of Star Trek fans) and attend any type of post-high school learning institution, you could receive a $500 scholarship.
- Zolp scholarship: If you were born with the last name Zolp and you happen to be Catholic, Loyola University will award you its Zolp Scholarship. The amount is unspecified, but any amount would be some compensation for being born with the last name Zolp.
- Cooperative education (co-op) programs are offered by many universities, and allow students to combine a job with their college education. It’s way less expensive and often makes it easier to get hired after earning a degree.
- Make appropriate adjustments in family assets. Financial aid formulas favor some tax-deferred accounts. Clients should work with a financial professional who is knowledgeable in this field to determine if moving some assets into a tax advantaged status may help qualify a student for financial aid.
- Earn college credits while still in high school. Take advanced placement (AP) classes, if possible. Take “dual enrollment” classes if they are offered. You can take those credits with you when you start college. Look into College Level Examination Program (CLEP) exams. Depending on the college and depending on your score, you may be able to trim a year out of the process.
- Start with a community college. If you go for a couple of years to a community college and then transfer to a more expensive school, you will get the same diploma as everyone else while saving a considerable amount of money.
Those of the baby boom generation have witnessed many soul-stirring events thus far in their time on Earth. From placing a man on the moon to the development of the Internet, these marvelous achievements have created a pervasive “anything’s possible” mindset in this generation — something that their parents, whose lives were tempered by a world war and the Great Depression, lacked. The boom generation that has earned more money than any other generation in history, has also created more debt than any other generation in history. From where I watch the world, I sometimes see many of the sandwich generation bite off more than they can chew. As a professional planner, I work with budgets. From my experience in dealing with hundreds of situations, I believe that by the simple act of categorizing and prioritizing, we can balance our load when it comes to caring for family members. In most cases, we can do right by them without killing our own chances of a reliable retirement plan in the process.