Planning For College 101: The Crucial Thing You Should be Doing Now

posted: 07/14/16
by: Ashley Lauretta
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Jar with label college and money.

It's not just your imagination, college costs are consistently on the rise. Unfortunately, it seems they are only going to continue to trend upward. According to CNBC, around $100 billion a year is borrowed through a cottage industry of private and publicly-funded loan programs.

It's not just students borrowing. Parents often have to take out additional loans to help their children leave college with less debt. So what can you do now to help ease the financial strain in the future?

Patrice Washington, a personal finance coach, Money Maven on the Steve Harvey Morning Show and founder of Real Money Answers, says there are two things that you can do to help prepare your children for college.

"First, look into a 529 plan--an account almost like a 401K, but designed to encourage families to save for educational costs--which comes in two forms: pre-paid and college savings," she explains. "The pre-paid plan allows you to purchase tuition credits in your state's university system at current tuition rates, which protects you against hikes in tuition. The college savings plan is a tax-advantaged account that allows you to accumulate assets to use toward any accredited college or vocational school in the United States."

She does acknowledge that the pre-paid plan has a downside, should your child not get into a state school or not want to attend one, but that the money can be withdrawn--with penalties--or transferred to another child in the family.

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"Second, we can put more responsibility on our children," adds Washington. "I tell parents to begin thinking less about what they have to do alone and more about how they can teach children the importance of what they have to do."

In order to do this, she recommends parents get their kids to 'buy-in' early on by instilling in them that college is expensive and they need to do their part in order to go.

"Harsh? Yes," she admits. "But for many, it's the reality, and they shouldn't be protected from the truth."

Washington explains that this way, children aren't surprised during the application process and you have the time--together--to come up with a debt-free strategy. Waiting until they are attending college and potentially already borrowing is too late.

Part of that strategy involves scholarships, which aren't limited to just athletics. Washington directs clients to Jessica Johnson, the founder of The Scholarship Academy, a non-profit organization that helps families create and perfect their scholarship brand. According to Johnson, children can start creating their brand and applying for scholarships as early as second grade.

"The most important thing," Johnson says, "is figuring out the child's likes and strengths and then making sure everything from extracurricular activities to volunteer opportunities support the same themes. Your child can look like an expert by eighteen and become a real asset to the right college program."