Tuesday, March 22, 2011

Before You Choose That College...

As college acceptance letters start to roll in, parents will soon have a better idea of their children's educational options for the years ahead.
But before students select a college and head off to school, financial advisers say there are a few things many families need to consider about how to handle the costs, get the most for their money and protect themselves against unexpected developments.
Below, five advisers share their words of advice for parents and their college-bound children.
1. THE ADVICE: Encourage your child to select a career first, and then a school.
Many parents and children approach college as a time to sort things out, to delve into a lot of areas and see which ones the child finds most inspiring. Greg Gilbert, an Atlanta-based financial adviser, sees it differently.
College, he says, is preparation for a career. But children often first think about what school they want to attend and then determine what career they will pursue. That can result in wasted time and money.
Thinking first about career options "helps children focus their college experience instead of hopping around from school to school," says Mr. Gilbert. It also may help cut down on costly extra classes in college and reduce or eliminate the need to retrain in the future, he says.
Of course, many high-school students have no idea what kind of work they want to do after college. Mr. Gilbert recommends that clients have their children work with a professional career counselor who can walk them through career options. In addition, he recommends that children shadow or at least visit with their parents' friends or other professionals in their field of interest and try to get volunteer or paid experience in the given field as early as possible.
"The key is not just saying 'Oh, I want to do this,' but instead, really actively vetting out the [career] idea to see if it's the right choice," he says.

2. THE ADVICE: Don't promise your child you'll pay the entire tuition.
It isn't that you don't intend to do it when you say it. But, warns Bob Goldman, a Sausalito, Calif., financial planner, "when the time comes, the parents may not be able to pay it." Being realistic, he says, will help the student make better-informed decisions.
The promise has become even more difficult for some of his clients to live up to after they have lost their jobs or suffered some other financial setback, he says. "The parents may now have to wrestle with [the choice between] paying for college or saving for retirement, and that makes for infinite pressure and pain on both sides," he says.
Mr. Goldman recommends skipping the promise, no matter how well-meaning and heartfelt, and instead have an honest talk with the child about the financial realities of the situation. He suggests parents might say, "I can pay X amount. If you want to go to a more expensive school, you'll have to borrow the money."
3. THE ADVICE : When deciding between an in-state public university on the one hand and a private university or out-of-state public university on the other, make your child responsible for at least some of the costs of choosing the more expensive option.
This takes away the "blank check" mentality when students weigh their education options, says John Gugle, a certified financial planner based in Charlotte, N.C. He also believes students are more likely to value their education when they bear some responsibility for the financial impact of their decision.
He recommends parents say the following to their children: "If you choose to go to the in-state public university, then we will pay all four years. However, if you choose to go to the private or out-of-state public university, then we will pay for three years and you will be responsible for one year."
Also, if the child goes to school beyond four years, the child should have to fund that additional cost, Mr. Gugle says.
This makes the child think "long and hard" about what they can afford, he says. Many of his clients have taken his advice, he says, and it has helped defuse a "thorny" decision-making process.
"Unfortunately money issues will often influence the college choice," Mr. Gugle says. "Parents and children need a way to balance the costs with the future benefits."
4. THE ADVICE: Make a deal with your child: Underperform and you're out.
"The whole concept is to promote responsibility and help the children understand this is a very important financial endeavor," says Donald Duncan, a certified financial planner based in Downers Grove, Ill.
Going to college should be considered the child's first real job, says Mr. Duncan, and job success should be defined by the child's GPA.
"If their GPA isn't satisfactory, they get fired from the job," he says. That means finding a less expensive option, perhaps a different college or a trade school.
If the parents are footing the bill, they should agree with the student on a certain minimum GPA before the child starts college. If the child is going away and the parents anticipate an extended adjustment period, the agreement might allow a certain amount of time for the student to make the grade. But the parents need to enforce the agreement if the child doesn't live up to the bargain, Mr. Duncan says.
In that case, a good community college may be a better value for the parents until the child is mature enough to realize the financial burden of a college education on the parents and is dedicated enough to make the cost worthwhile.
5. THE ADVICE: Help children protect their health and finances from uncertainty and risk.
Once a child turns 18, parents no longer have the legal authority to access the child's medical records or make health or financial decisions for the child, says Laura Mattia, a Fair Lawn, N.J., certified financial planner.
That loss of control over a child's care "is a hard thing for a parent to hear," she says, but families need to create a "game plan" to address the unexpected.
It should include three documents—a health-care directive, a HIPAA release and power of attorney—which together allow parents to access a child's medical records and make decisions on the child's health care and finances if necessary.
Ms. Mattia gave this advice to a client whose child was going to study in London for a semester. The client initially was shaken by the realization that she could no longer make crucial decisions on her daughter's behalf without taking legal action, Ms. Mattia says.
But it prompted a conversation between mother and daughter that brought into the open the anxiety they were both feeling about being so far apart and introduced the daughter to the importance of financial and estate planning. It also prompted the mother to take another look at her own estate plan.
"It was an empowering discussion for both the mother and daughter," Ms. Mattia says.
Corrections & Amplifications
HIPAA is the acronym for the Health Insurance Portability and Accountability Act. An earlier version of this article incorrectly referred to it as HIPPA.


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