Costs of College

Back to school brings parents a sigh of relief in one sense but it also brings to mind the cost of higher education.

If your student is bright and talented, there is a possibility he/she might qualify for Merit Aid. Be aware that some elite colleges may not offer merit aid to all students. Merit aid might be only offered for certain majors, e.g. engineering or computer science or particular talents, e.g. music, dance, athletics.
Parents need to research those colleges offering merit aid and learn the criteria needed to quality.

Financial Aid (need-based) may be available based on the student's family situation. The formula: cost of attendance - the Expected Family Contribution = need, determines eligibility. The EFC, the result of two formulas from FAFSA and CSS Profile, is the amount a family can afford to pay each year.
Parents need to learn their EFC early and develop a strategy to make their student eligible for aid.

Student loans are both a help and a curse. Over time, the interest can add tens of thousands of dollars to the cost of college. Parents borrow from home equity, retirement plans and Parent Plus loans all adding the interest costs to the college expense.
The key is to borrow the bare minimum, search for the lowest interest rates and pay off everything as soon as possible!

529 Plans are an effective way to plan for college:
- They can be set up as a systematic deposit.
- Depending on your state, they may offer a tax credit.
- The gains are not taxed when used for qualified college expenses.
- They reduce the amount of money taken in loans.

Be $ Smart - do some homework, plan ahead, be aware of the extraneous costs of college and borrow as little as possible.

Investment Diversification cont'd - Cash

In previous weeks we talked about the various ways to diversify your money among stocks and bonds. A third component of spreading your money is CASH. It is important to keep a percentage of cash on hand for various reasons:

- safety - the value stays reasonably consistent,

- liquidity - it's available with no hassle when you need it,

- opportunity - when a time to enhance your portfolio comes along the money is available to buy more stocks or bonds,

- emergency - with an ample cash cushion you won't run up credit card debt incurring huge interest charges.

Other than stuffing the cash into your mattress or hiding it in a coffee can in your closet here are a few places to keep your cash:

- plain old-fashioned bank savings account (FDIC insured),

- short-term bank CD (certificate of deposit) (also FDIC insured) where you have immediate access if you are willing to incur the penalty and lose the interest but in this low-interest environment, you won't be sacrificing much,

- money market, which is actually a money mutual fund of a variety of very short term investments ( may be FDIC insured if at a bank) and usually pays a higher return than a savings account,

- short-term bond fund, which is a grouping of bonds that mature soon and frequently. These are definitely not FDIC insured and will go up and down as the bond market reacts to various events. Because these funds hold very short-term investments, they are not very volatile, reasonably safe and offer a higher return.

Be $ Smart - find a good home where you earn some interest on your "safe" cash investments.