Personal Investment & Financial Planning Q`s/College Funding

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QUESTION: Dear Mr. Smith:

Is there truly a "smart" way to prepare for college funding?

That loaded question seems to generate amazingly mixed responses.  The conventional wisdom we have been hearing from peers over and over can be summed up as "don't save because they will take it all from you".

I am not sure I buy into this logic.  First off, I am never clear on the alternative.  By not saving - full disclosure: we are - we seem to be left with the hope that somehow the college in our child's future will cut her a break financially, whatever that may be.  Let's say for argument's sake we did not save at all and somehow that and/or my child's brilliance resulted in a discount, as in some form of lowering of the overall bill.  Barring a full scholarship, even in that scenario the bulk of the expenses will need to be paid somehow, either by us, or our child, which may involve loans taken out by, again, either us or our child.  In other words, of course "they" will take it from you one way or the other.  "They" are not a charity.  But does that mean one shouldn't save?

I should note that we have one child who is about 5 years away form college.  We feel strongly about not burdening her with debt before she's even started her first job.  We also have no desire to add debt to our own personal finances at that point.  My personal impression is that the "don't save" crowd typically has multiple kids, is rightfully feeling overwhelmed by the college costs ahead, and therefore accepts that the children will take on the debt, and they might help them pay it off.  I genuinely can't blame them for that line of thinking.

The question(s) we have probably boil down to these:

- Are we truly foolish to have the bulk of the funds saved upon college application?
- Should we be parking the money somewhere less visible or tangible?
- Is it truly advisable to feign lacking assets and/or income upon college application?

We would love to hear your thoughts on this.  Thank you for taking the time.

Best
Burkhard

ANSWER: Hi. Your question about college savings is a good one, although, admittedly, the context of the question is a new one to me. What I mean by this is that I have never talked to someone who wants to provide their children with the opportunity to go to college and at the same time take the stance that saving for it is not necessary. In other words, I agree with your thoughts on this type of response in that it simply does not make sense to me. If it is important to you to send your child to college, or assist in some way, then you will have to save for this in some fashion, whether its saving something prior or paying as you go out of cashflow while they are in college, or both. The only other option will be to rely on a full ride scholarship and/or burden the child or yourself with debt. With this being said, there are "smart" ways to save for college that take advantage of certain tax laws and breaks as well as minimize the impact this savings will have on your childs ability to qualify for certain loans and grants if desired or necessary. The rules are complex so I think its best to direct you to the following 2 websites; www.savingforcollege.com and www.finaid.org. Both containg useful and important information on saving for college. I hope this helps!

---------- FOLLOW-UP ----------

QUESTION: Thank you so much.

I was initially stunned that you hadn't had this conversation or even heard of the stance that saving is essentially pointless if not disadvantageous.

The more I thought about it though, I realized that (again, just from anecdotal evidence, no scientific stats) seeking out third party financial planning advice is typically done by those who have a saver / worrier mind set to begin with whereas in speaking with many peers I get a lot of "cross that bridge when I get to it" commentary.  In other words, i fear that too many people have the attitude I describe, yet they have never vetted it by seeking professional advice.

I have literally heard people say "it's their education" when justifying that it will be "their" debt, as in their children's.  I have also heard more than one person say that given the many kids they have, they can't just pay for the first and not the others, so why bother.

I have not conducted any surveys, but I have not met a single person that made a clear statement as to intending on saving for and funding their children without hearing some sort of "well, you don't want to save too much" qualifier.  To me, it's worrisome even on a macroeconomic level.

Thank you again for pointing out the resources

Answer
Hi, To clarify, my prior comments were meant to imply that IF a parents priority is to do all they can to help provide a college education for their children, then some sort of proactive savings will be required. What I mentioned not ever hearing was a parent who does have this as a priority saying they are going to rely on a strategy other than proactive savings to accomplish this. If a parent's priority is to NOT help a child with college, then obviously, they should not feel compelled to save for this and would instead rely on other sources and means. I hope this helps clarify.

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John D Smith, CFP

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I can answer detailed questions regarding mutual fund investing, retirement planning, education planning and related comprehensive wealth management and investment concerns.

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I have been providing fee only investment management and comprehensive wealth management services for the past 19 years.

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I have a degree in Financial Planning & Counseling and I am also a Certified Financial Planner practitioner.

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