College Planning Tips
It takes a lot of money to put a child through college. According to The College Board, the tuition for a public, in-state, four-year college averages $9,650 for the 2016-2017 school year. Out-of-state students average $24,930 this year, and students who are attending a private school are paying an average of $33,480. If you and your partner would like to save for your child’s college future, carefully weigh all your options before choosing which method is best for you.
What is FAFSA?
If you plan on paying for your child’s education expenses out-of-pocket, as they are incurred, then you don’t need to worry about FAFSA. If you aren’t sure about saving for college, though, then it could become an important document for you in the future. FAFSA stands for Free Application for Federal Student Aid. It is the form your child must complete in order to access unsubsidized Federal Stafford loans.
The Impact of FAFSA on Same-Sex Couples
The form is constantly being revised to adapt to new laws and statutes. After the 2014-2015 academic year, the form changed the way it defined parents by allowing students to list “Parent 1” and “Parent 2” instead of just “Mother” and “Father.” Since that change, it has also modified how it looks at household income levels, even when parents are not legally married.
- Regardless of whether you are married, have a civil union, or just cohabitate, as long as you are living with your partner, your child must report the incomes of both biological and adoptive parents on the form.
- The only exception to the rule above would occur if:
- the child is from a previous relationship;
- your partner is not legally married to you; and
- your partner has not legally adopted the child.
- If your child is from a previous relationship and you are now married to your partner, your partner will be listed on the form as a step-parent – and his or her income would be included.
Why do these changes matter? Your child could qualify for less Federal loan assistance with increased household income.
Ways to Pay for College
There are many possibilities when it comes to college planning. While most of them call for saving early and budgeting funds – much like groceries – they all come with advantages and disadvantages.
- 529 Savings Plans –
- Pros: A 529 plan could offer tax benefits if it meets certain requirements. It also can be either pre-paid or invested in incrementally, like a 401(k).
- Cons: A pre-paid 529 is treated as a resource on the FAFSA form, like a scholarship, but a 529 Savings Plan is treated as an asset – which could hurt your Federal loan aid.
- Coverdell Education Savings Accounts (ESAs) –
- Pros: A Coverdell ESA could offer tax benefits, and it could also provide more investment flexibility. Another advantage is that it could be used for some K-12 expenses.
- Cons: The contribution phases out at certain income levels, and if you contribute more than $2,000 per year (including family contributions), you could be penalized.
- Unsubsidized Loans –
- Pros: Unsubsidized Federal Stafford loans have flexible repayment options.
- Cons: Private loans could require you to co-sign with your child, meaning that you’re on the hook if he or she doesn’t pay the loan back.
- Subsidized Loans –
- Pros: If you are a lower-income family, subsidized Stafford loans could be your cheapest college financing option because the government pays for some of the loan interest.
- Cons: Your child must be able to demonstrate financial need in order to be eligible.
- Private Grants and Scholarships –
- Pros: Many schools offer scholarships, grants, or special loan packages to help your child attend their particular institution.
- Cons: This money could be hard to attain since many children could be competing for it.
- Life Insurance –
- Pros: Some permanent life insurance policies (e.g., Universal Life or Whole Life) offer flexible installment schedules, and they all have a death benefit.
- Cons: Part of your “savings” is paying for that death benefit.
- 401(k) Loans –
- Pros: If you borrow from your 401(k), you could repay yourself without taxes or penalties.
- Cons: If you leave your employer without having repaid the loan in full, the balance could be treated as an early distribution and incur penalties and taxes.
Finding the Right Option for You and Your Child
If you are worried about college savings, it could be a good idea to talk to your child about it. Attending a community college for a couple of years may not be optimal, but it could save you and your child a lot of money down the road. Whether you choose to establish a 529 plan or want to apply for a Federal loan, plan for college in a way that fits the needs of you and your child.
The opinions voiced in this material are for informational purposes only and are not intended to provide specific advice to any individual. This information is not intended to be a substitute for specific, individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
As a Registered Investment Advisor (RIA), Partnership Wealth Management is committed to providing our clients with financial planning and wealth management services to help them make the most of their investments. At Partnership Wealth Management, we have a long history of working with the LGBT community. Among the many services we offer are financial planning and estate planning strategies for gay and lesbian couples. Financial planning is an important part of preparing for the future; contact us today to get started: www.partnershipwm.com.