Family Resources
Click on the links above for more on Student Work and Common College Savings Vehicles.
Family resources can come in many forms: money put away for students by parents and grandparents over the years; student earnings from a part-time job; parent income from work and/or investments; various assets accumulated by parents over time. Any combination of these resources can help meet college costs and your Expected Family Contribution (EFC). Because parent income is usually a fairly “fixed” resource (most parents are not likely to change jobs or drastically adjust their incomes just because their children go to college), this section deals with how student work can contribute to available family resources, and the best ways to save when helping pay for college.
- Establish expectations for the student and the parents involved. Often parents feel their students should have some investment in their college educations. For some, this may mean taking out student loans; for others, it may mean working during the school year to buy books or supply spending money. The role of the non-custodial parent in divorce situations should also be discussed in families where this is an issue. (Note: The financial aid regulations specify which parent’s information is used in determining eligibility for financial aid. It is the family’s responsibility to sort through the arrangements to be made by the non-reported parent.)
- Figure out what amount can reasonably come from current earnings and savings and what may need to be borrowed. Explore the various payment options available at the colleges your student is considering. Most now offer extended payment plans over the course of the academic year - sometimes even beyond. Don’t forget to ask about the colleges’ loan options/suggestions too.
- Explore ALL your options, but don’t rob your retirement account. Just because the account doesn’t have the word “college” in it, doesn’t mean it's not a good way to access some cash during these years. For example, some families find that tapping into a home equity loan or line of credit or even cash values in life insurance policies can offer an affordable way to borrow (even more so than many education loans for parents). In the case of home equity loans, the interest may also be tax deductible. What should probably stay off limits, however, are retirement accounts. They will become very important some day, and some may also have penalties for early withdrawal. Think twice before you tap into money that is set aside to get you through your later years.
- Remember to take advantage of breaks in the tax code. Recently, many provisions have been written into the tax code to make life easier for families paying for college. There are education tax credits (Hope and Lifetime Learning Credits) and special deductions (Tuition & Fees and Student Loan Interest Deductions) of which you should be aware. Talk to an accountant to see if you qualify for any of these during years in which you have out-of-pocket education expenses.
- Continue college savings! Many families underestimate when they should start putting money away for college or how much they will need when the time comes. The earlier you start the better. However, keep in mind that not all college savings vehicles are created equal. For more on common college savings vehicles, click here to view a summary chart with more information on various types of accounts.
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