Don’t wait until your child’s senior year of high school to begin planning how to pay for college. The first 18 years go quickly, and it’s never too soon to begin preparing.
Here’s one simplified approach showing some important steps along the timeline to college, with a focus on the financial planning aspect of the process.
Before High School
Start saving for college ASAP: This is the relatively uncomplicated part. Although we can’t predict the costs of college over a child’s lifetime, it almost always makes sense to begin saving early on. Even if MOOCs or other innovations make higher education more affordable in the future, there’s usually not much of a risk in saving too much since there are options for dealing with “left-over money in your 529 plan”.
Before Junior Year of High School
- NMS potential: If your child tends to score in the 95%ile of standardized tests, he may have a shot at earning a National Merit Scholarship. A little test prep can make the difference in qualifying for significant merit financial aid.
- Base Income Year (BIY): If there is a chance your family may qualify for need-based financial aid, you should explore ways to minimize income during the BIY, the 12-month period that begins January 1 during your child’s junior year. Since the BIY is used as a snapshot for determining financial need, you may want to consider strategies such as not selling stocks or property that will create large capital gains, refrain from converting to a Roth IRA, or defer bonus or other income.
Junior Year of High School
- Create list of schools: Get serious and make a realistic list that includes academic and financial safeties.
- Can we afford it? 1-2-3: Determine affordability by using the 1-2-3 Method or something similar.
Senior Year of High School
Senior year is the busiest time for families as they handle the many details of the college application process, including final determination of how they will be paying. Some important acronyms:
The two main forms used in determining financial aid eligibility are the FAFSA and PROFILE.
FAFSA is the acronym for Free Application for Federal Financial Aid. It is a form submitted to the government that collects the financial information needed to decide your eligibility for federal FA. It’s also used by many colleges to determine institutional aid.
PROFILE is a financial aid application service offered by the College Board, used by about 400 colleges to learn if students qualify for non-federal student aid. There is a fee to submit a PROFILE, whereby the FAFSA is free.
The SAR (Student Aid Report) is a summary of your FAFSA responses and provides “some basic information about your eligibility for federal student aid”.
It’s important to get started.
While this outline only hits the highlights along the road to paying for college, it can be used as a springboard for further research and action. It makes sense to start with an outline, and then fill in the details as you go along.