4 Things for Parents to Consider When Helping Pay for College

College is an important step in people’s lives; it can open many doors for those who make the most of its education and networking opportunities. Higher education can be expensive, however; with tuitions on the rise, parents are facing the task of helping with bigger and bigger price tags to help put their children through school. Here are a few things parents may want to consider when thinking through how they’ll finance a college education:

Total costs

Tuition costs have been on the rise for decades and show little sign of stopping. However, tuition is only one of the costs students have to contend with. Room and board have gotten more expensive as well, making the typical college experience an even pricier endeavor—especially if it takes longer than four years to graduate.

Luckily, universities offer different forms of financial aid and grants, which can have a big effect on the college’s “sticker price.” Students who fill out the Free Application for Federal Student Aid (or FAFSA) can calculate their family’s expected financial contribution, which can give a good (though not perfect) sense of how much financial aid to expect. “It’s a resource worth looking into: students and parents that take advantage of their colleges’ financial aid offerings may see their net expenses decrease,” said Joel Purcell, a financial advisor with Northwestern Mutual.

Student loans

Student aid packages will rarely be big enough to pay for college on their own, so many prospective students turn to loans to help finance their education. It is important to distinguish between public and private loans—public loans offer fixed interest rates, borrower protections, and an array of repayment options (like income-based repayment and public service loan forgiveness). Many parents may choose to first borrow via federally-insured loans—first subsidized, then unsubsidized—and then take out private loans to pay for whatever public loans can’t cover.

Sources of additional cashflow

Student aid and loans aren’t the only way to finance a child’s higher education. Many parents make use of savings to help finance college expenses. Some may have college savings accounts like 529s or Coverdell accounts. Others prefer to use different options—such as utilizing the cash value in their permanent life insurance, such as whole life insurance or universal life insurance.

Communication

“For most, college is too big an expense for any one person to bear—it’s why families frequently work together to put loved ones through school,” said Purcell. “Paying for college is a cooperative endeavor requiring clear, consistent communication between everyone involved.”

It’s important to have frank discussions with each other about goals, payments, deadlines and all the realities that go into financing such a massive project. By staying on the same page, families can find the most effective way to give their loved ones a chance at higher education.

The primary purpose of permanent life insurance is to provide a death benefit. Using permanent life insurance accumulated value to supplement retirement income will reduce the death benefit and may affect other aspects of the policy.

Source: Northwestern Mutual