Paying for College Without the Pitfalls
Student loan debt now exceeds total credit card debt in the U.S. and about 10 percent of those loans are delinquent. This has led many in the financial media to wonder if the student loan "bubble" will be the next to burst, bringing us yet another financial crisis.
"The Obama Administration's student loan policy to promote a college education shares many attributes with the 1995 Clinton-initiated Bush-promoted policy to promote homeownership that subsequently led to the subprime lending debacle," says Kevin Villani, former Freddie Mac chief economist in the early 1980s, in a recent column. "First, declare that the opportunity to own a home -- go to college -- is a basic right. Then set a public goal for homeownership -- college attendance -- well above private individual demand. When budgets become tight, have government lenders replace private lenders, mitigating the need to save in advance or demonstrate the ability to repay."
We as individuals may not be able to stop this latest government-induced financial train wreck. But if you are a parent or student, there is something you can do personally: Don't be a part of it! That means looking carefully at opportunities you can seize to assure your fiscal future.
Even in the unlikely event student loans don't turn out to be another bubble waiting to pop, there are plenty of reasons for families to devise long-term financial plans to save for children's college tuition.
Despite the political talk about getting the costs of higher education under control, the expenses continue to mount and are daunting for many families. According to the College Board's Trends in College Pricing, the 2011-12 average total costs (including tuition, fees, room and board) were $17,131 for students attending four-year public colleges and universities in-state and $29,657 out-of-state, and $38,589 for students at four-year private colleges and universities. Families can also expect additional costs of $4,000 for textbooks, supplies, transportation, and other expenses. And those are current numbers!
With the costs of higher education high and rising, it's important for families to start planning for college early. Yet most people don't know the pitfalls to traditional college savings plans. Among those problems: Traditional 529 college savings plans are very restrictive, which can be a major problem if your family has a change of plans. If your child decides not to go to college, your money may be locked up until you're nearly 60 years old -- unless you decide to go back to college and use it yourself. You'll pay hefty penalties for using it for anything besides college classes.
Other common methods used by families saving for college, UGMAs (Uniform Gift to Minors Accounts) and UTMAs (Uniform Transfer to Minors Act) have the opposite problem. The money becomes the child's property and parents have little control over how they use it.
In addition, these college savings plans are typically tied to the stock market and can (and do) tank just as the child is ready to tap into it.
Is There a Better Way to Pay for College?
Many families have discovered a safe and time-tested savings method that uses specially designed dividend-paying whole life policies that grow by a guaranteed and pre-set amount ever year. This method allows you to know with absolute certainty how much your plan will be worth on the day your child starts college. By adding certain little-known policy riders, the policy can grow as much as 40 times faster in the early years than a conventionally designed whole life policy.
If your child is young, relatively small monthly contributions can ensure you'll have a substantial, guaranteed sum of money when they're ready to go to college. Even if your child is older, there are ways to structure the policies to ensure the money will be there when it's needed.
These policies have increased in value by a guaranteed and predictable amount every since year for more than 160 years. You'll never lose sleep wondering what the stock market will do next -- or how your child will pay those seemingly never-ending monthly installments after college.
As a consultant to financial advisors, Pamela Yellen investigated more than 450 savings and retirement planning strategies seeking an alternative to the risk and volatility of stocks and other investments. Her research led her to a time-tested, predictable method of growing and protecting savings now used by more than 400,000 Americans. Pamela's book, Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future is a New York Times Bestseller. Learn more at www.BankOnYourself.com
The Morning Email helps you start your workday with everything you need to know: breaking news, entertainment and a dash of fun. Learn more