Parents

When does your teenager become an adult?

A recent spate of articles on “Letting Go” and “Helicopter Parenting” surrounding the difficult event of parents dropping teenagers off at college included one about parents who choose to stay around after the drop-off for a couple days.  Why would they do that?  “Just in case Junior needs something.”  Maybe that’s not the real reason.

Colleges are seeing this more and more and some are scheduling specific times to say goodbye.  Some have workshops on transitions.  Some suggest parents rediscover their romantic lives.  Expensive therapy!

This brings up the question, when does your child become an adult?  Is it 4pm on drop-off day? Is it his 18th birthday; her 21st?  Obviously there is no one answer, but the reality is that when you leave them at school, as far as everyone else is concerned, they are adults.  The challenges that start from that moment are huge:  coed dorms, roommates, parties, homework, varied schedules, group activities, a new town to drive around in.  How your teenager handles these has nothing to do with the definition of when they become an adult and everything to do with where they are on the maturity spectrum.

Our job as parents is to start early, giving our teens pieces of freedom while they are in high school, seeing what their choices are, and talking about them.  The more we do that, the better they can handle what college life throws at them.  So parents, talk to each other about how you are doing.  How much freedom does your son or daughter have to make choices, including ones you don’t agree with?  After drop-off time, you won’t even know the choices they make.  Start preparing them for that now, at home, where you can help.

Now you see it, Now you don’t

How has the recent government stimulus affected your college plans?  There was the American Opportunity Tax Credit.  And the broadening of 529 plans to cover computers and internet service.  Stimulus = Good, right?  Not really.

Now that the “stimulus” has run its course, the real effects are coming.  The U.S. News and World Report notes that federally funded work-study jobs will drop by 162,000 to 768,000 for the 2010-2011 academic year.  Why?  No more “stimulus”.

Students hoping to earn a little extra cash on campus this fall will have a tougher time as the number of federally funded work-study college jobs nationwide will drop by 162,000 to 768,000 for the 2010-2011 academic year.  Why?  No more “stimulus.”

Or this:  Thirty-nine states used “stimulus” money to keep public colleges and universities afloat.  Families are likely to see large tuition increases as “stimulus” funds run out.  Virginia is in the middle of this where “stimulus” funds reduced a possible 15% budget cut to 4%.  State tax revenues are unlikely to increase nearly enough to offset this lost transfer payment.

Perhaps it was less of a stimulus and more of trying to buy some time.  The time is running out.  In this changing landscape, don’t rely on the government to come up with answers for your family.  We can help you with your plan.

Teenagers and Human Capital

Interesting piece in the Wall Street Journal about personal risk management, and how you need to evaluate not only the risk in your investment capital but also in your human capital – your measure of your future earnings based on where you are in life.  As a student, your human capital far exceeds your investment capital – your portfolio.  The author, a college professor, has some concluding advice for students:  “…too many students (and some parents) view education as a consumption good.  They immerse…without any regard for how this might influence the future dividends of their human capital.  It’s time to wake up and measure the internal rates of return from your undergraduate major…Do not let your kids leave college without a hedge for the human capital.”  It’s worth some thought.

The Shocking True Cost of Student Loans

What does your student loan cost you? The conventional answer is to look at the monthly payment times the number of months and get the total. If you graduate with $20,000 in Stafford Loans, paying them back at $230/month for ten years, you’ll pay right around $27,600 total. But there is a huge flaw with this logic.

What will you NOT be doing with that $230 per month while you are young and working? Answer: saving and investing it. Compare two graduates, Susie Stafford with the loan payments shown above, and Nellie No-loan graduating debt free. With plenty of time to retirement, they can each have aggressively invested portfolios. Each invests similarly.  How do they fare when they are 65?

Susie Stafford will have $600,000 less in her retirement account than Nellie No-loan will, given the same return assumptions (available upon request.) In reality, it may be worse than that because Susie will have to be exposed to more risk in her portfolio as she ages than Nellie will.

When you think about the true cost of borrowing money for college, remember to include the opportunity cost of the money you will NOT have to invest for your retirement.

Tuition Increase Numbers Are In

Virginia public colleges have reported their planned tuition for 2010-2011.  Below are the planned increases in tuition and mandatory fees.  Does your college funding plan deal with how to pay for these?

How money can be a factor

Here’s a good listen from Marketplace on how some families are having to deal with bringing the cost of college front and center in making decisions. Does this sound familiar to your family?
To go directly to the page with the audio, click here.

Deadlines Matter

Two stories this week really brought home the matter of getting your college business taken care of early. States are running out of grant money. The Illinois Student Assistance Commission announced it was suspending awards for students that had not yet submitted the FAFSA. The Kentucky Higher Education Assistance Authority will only be able to pay out money to students who applied by March 7, 2010, even though the application deadline was March 15. Other states are making similar tough decisions.

The takeaway? If you are applying for financial aid for your state, do not wait. File early.

And have a back-up plan!

Zany Scholarships

The Wall Street Journal highlights wacky scholarships in a front page article. Talk of Duck Tape contests, tall people awards, and strange last names are fun, and maybe they even interest you. At College Funding Group, we encourage students to “look local” first. The CFG ScholarBank^TM might be your ticket to do just that. With over $900,000 in scholarships that metro-Richmond students can win, the ScholarBank^TM is sure worth more of your time than researching strange last names! If you need any help, please let us know.

Cars vs. College

As teenagers get their driver’s licenses, talk often turns to what car they can drive. Driving is an expensive proposition in it’s own right but college isn’t far off, and this is a great time to start setting the stage for how your family handles major financial matters. Let’s look at just three areas:

1.  Choice: Parents often start out with the idea that they will get a nice, safe, used car. Perhaps you’ve looked at the list in Consumer Reports. Maybe you checked CarMax to see what was available. All good ideas. But then your son gets involved and, “Mom, a VW Rabbit? Are you serious?” Does your conviction start to weaken? Do you end up with a what they want to drive?

2. Cost: Not many teenagers have the resources to pay cash for a car, or the income to support a car loan. How are you going to handle that? Do you make a formal loan, or do you just buy it? Do you require your teen to make any payments to you? Whose name do you put the title in?

3.  Operating expenses: Insurance is very expensive, and at $3 a gallon, gas isn’t far behind. Who is paying for these costs, and how formal is this arrangement? What if the car needs tires or some engine work?

There are lots of points that we could cover here, but the important thing is to think about these sorts of things before you buy the car, just like you need to think about them before you “buy college.” How will you decide what colleges to consider? How much involvement should you teenager have in the cost?  And who is funding their ongoing living expenses?

If you find that a relatively simple transaction like buying a car causes you, as a parent, to compromise your values, will you be able to handle it when it comes to paying for college?

Grants vs. Loans

Financial aid award letters are coming in soon, and it is important that you read them carefully. Aid comes in different forms. The total amount of the aid package is less significant than the mix of grants vs. loans. Packages heavy on grants are what you want.

There is no standard form to the award letters, so they can be difficult to compare from school to school. Be sure to double check the Cost of Attendance (COA) for each school, and look at the individual components to confirm they are accurate for your family (items like personal expenses and transportation for example.) You can find COA information on the school’s website or on www.collegeboard.com.

When looking at the award, identify the amount for grants, work-study, and need-based loans. See if non need-based loans are included in the letter. Write down the amount for each category.

Here’s a tip: when you subtract the amount of the grants, work-study and need-based loans from the COA, you should be close to your Expected Family Contribution.

The letters can be confusion, so if you are not clear on what the college is offering, have your son or daughter pick up the phone and call the aid office. Ask them to explain the package, specifically the amount of grants vs. loans. Your student will get a better understanding of how this process works and so will you.

If you have any questions, we’re here to help.