Ask an Advisor: We’re in our late 50s with 2 children who plan to attend college. How do we pay for college without derailing our retirement or saddling them with crushing student loan debt?

Ask an Advisor: We’re in our late 50s with 2 children who plan to attend college. How do we pay for college without derailing our retirement or saddling them with crushing student loan debt?

The first step in college planning is to understand how much various schools your children are considering might expect you to pay.  There are two methods schools generally use.  The first is called the Federal Method and is determined when you fill out the Free Application For Student Aid or FAFSA.  The majority of colleges use this method.

The second is the CSS Profile, which about 300 of the top private colleges use.  They are similar, but the CSS Profile goes into much more detail.  The biggest difference between the two is CSS Profile takes home equity for your primary residence into account while the Federal Methodology does not.

There are tools and calculators that can help you with this.  I like College Aid Pro [Disclosure:  I consult for them and use their tool with my clients, although I don’t receive compensation for recommending them].  Additionally, every college is required to have a Net Price Calculator on their website allowing you to provide some information and get an estimate of what you’ll be expected to pay.  These can vary in accuracy.

For most families, the amount they’ll be expected to pay (Student Aid Index or SAI) is largely driven by the parents’ income.  It’s also influenced by non-retirement assets, but these are assessed at a lower rate than income.  Once you know your SAI from the FAFSA calculation, you’ll understand if you’re likely to qualify for need-based aid.  A low SAI means you are likely to get need-based aid.  Your strategy then is to find schools that meet a large percentage of need with grants.

If, like many other families in your situation, you are in your peak earning years and have an Adjusted Gross Income > $150,000, you’re unlikely to qualify for much need-based aid except at the most expensive colleges.  In this case, your best option is to look for schools that offer significant merit aid (scholarships) based on your child’s academic record, extracurriculars, or other talents.  Most schools base these on GPA, class rank, and Standard Test (ACT/SAT) scores.

Once you’ve got the expected costs, you should review your ability to pay.  Consider assets like 529 plans and savings.  You could also look at other options, including potential grandparent contributions, home equity, or retirement accounts (assuming they’re overfunded for what you’ll need).  You should also think about how much you could cash flow since your child will no longer be under your roof.  This includes how much you spend for their food, sports, or other extracurricular activities.  Many families are surprised when they add up these expenses.  For some it can approach several hundred dollars per month that they can now direct to paying for college.

Once you’ve got this, you can see if you’re on target or if you’ll need to find additional money to bridge the gap.  This gap is typically closed through loans.  For undergraduate borrowers, they can borrow $27,000 over the four years from the Federal Government.  These are typically the best loans you can get and should be considered first.  After that, there are Parent Plus or Private loans.

The key to all of this and the heart of your question is that you need to shop for college like you would for a home.  If you’ve got a high SAI and little saved, you shouldn’t be looking at schools that don’t give merit aid.  That’s the equivalent of knowing the maximum mortgage you can get is for $500,000, but going out and looking at million-dollar homes.

There are planners and services out there that can help you do both in-depth college planning that will match your budget to the best school(s) for your child to consider.  Financial planners that specialize in this can also evaluate whether you’re on track for your retirement.  An expert college/financial planner can often provide value multiple times above their fee in the amount they can help you save in college costs.

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About the Author

Mike Hunsberger, ChFC, CFP, CCFC

Mike Hunsberger is the Founder and Owner of Next Mission Financial Planning. He loved his 25-years in the Air Force but wanted to do something different when he retired. Mike graduated from the Rochester Institute of Technology with a Bachelor’s, Computer Engineering, USAF Air War College, Master’s, Military, US Air Force Institute of Technology, Master’s Degree, Cyber Warfare, Naval Postgraduate School, Master’s Degree, Computer Science and Systems Technology. Get to Know Mike Hunsberger on Wealthtender.