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Saving for College
College Saving -- Down to the Wire
By Tim Koenning
Registered Investment Advisor Representative, Magnolia Financial Advisors, LLC
Tassels, caps, gowns and football season - sights that trigger high school students’ dreams of college - often signal a financial nightmare for parents facing college costs estimated to reach as high as $120,000 by many sources within the next few years. There is no miracle solution for financially strapped parents with only a few years to raise funds for their child’s college education, but there are several investment vehicles that can help.
For instance, with children more than five years away from college, growth oriented portfolios offer an investment direction and return potential for parents to achieve the necessary education fund. Parents should be careful to keep the assets in the parent’s name instead of the child. This keeps the child from spending the money on something other than a college education when the child becomes legally entitled to the funds.
A more conservative investment approach is recommended if a child will attend college in three to five years. It would be an unhappy last summer if college investments took an untimely dip. A balanced portfolio with a mix of equities and bonds is a conservative investment approach that attempts to minimize this risk through diversification.
For families with only a year or two to the first big day, short-term, fixed income investments, may offer the necessary liquidity and safety of principal. If a family needs to protect its principal the best route to take may be short-term investments such as U. S. Government notes, money market mutual funds, and bank CDs that can all provide some assistance in this area.
For families in immediate financial need, a last minute option may include securing a home equity loan, where the interest paid on the loan may be tax deductible. Another option might entail loaning to oneself by borrowing from a 401(k) retirement plan. Of course, this would only be possible if the particular retirement plan allows for it.
Finally, unless the total amount needed to pay for a college education is saved, students should apply for any type of financial aid available to them. This includes any grants, loans, or scholarships for which they qualify. Of course, all of these recommendations must be considered in light of your particular financial circumstances. Be sure to consult a financial planner to help you choose the best last minute options.
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