1. Not Underestimating the Expected Family Contribution
The expected family contribution (EFC) is the part of a family’s income and assets that you are expected to spend in any given year before financial aid begins. Generally, financial aid will only cover college costs that exceed your EFC.
2. Ignoring Time Horizons
Unlike retirement assets that most people take 20 to 40 years to deplete, you can expect to use your college savings account over a much shorter period of two to four years. This means that when you get close to needing to actually withdraw the money, you should consider moving to less volatile assets. Age-based accounts in 529 plans automatically do this, making them a great option for parents with limited time or investment knowledge.
3. Ignoring Educational Tax Benefit Opportunities
Some of the most generous tax benefits available to the middle class in America are designated for college planning. These benefits, whether in the form of a tax deduction or tax credit, can save thousands of dollars toward college tuition or fund your state’s 529 plan. The American Opportunity Tax Credit (formerly known as the Hope Scholarship) allows individuals with a modified adjusted gross income of $90,000 or less ($180,000 if married filing jointly) to qualify and can provide up to $2,500 annually per student. The Lifetime Learning Credit pays up to 20% of the first $10,000 in qualified higher education expenses and is available to individuals with a modified adjusted gross income of $69,000 or less ($138,000 or less for joint filers).
4. Ignoring Student Loans
Some parents consider student loans to be an embarrassing sign that they aren’t earning enough money or haven’t done a good job saving. While this may sometimes be the case, it is important to recognize that college costs are rising much faster than most Americans can keep up with. Using the right federal student loan programs can help parents and students finance college education at a 4.99% annual rate. Whether you think you will ultimately borrow money through programs like PLUS loans or not, it is also important to fill out the FAFSA form. This is the primary form that most financial aid offices at schools use to determine what you may qualify for. The worst that can happen is that they tell you no.
5. Underestimating the Impact of Inflation
Until you understand how fast college costs are rising, it’s difficult to do a good job planning for college. While the overall “cost of living” has historically risen at an average annual rate of 2%, college costs have risen faster, sometimes much faster. Understanding proper investment choices and using accounts aimed at fighting inflation, such as prepaid tuition plans, is critical to ensuring that college education remains affordable.
6. Investing in Too Complex Ways
Some families insist on unconventional investments for their child’s education fund, such as timber farming to use when the time comes to go
Source: https://www.thebalancemoney.com/top-college-planning-mistakes-made-by-parents-795260
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