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College financing :Get the facts
How in the world are we going to pay for it?

This is a sentiment expressed by more and more parents as they contemplate the staggering costs of sending their kids to college. Tuition, room and board, meal plans, fees, books and other costs associated with higher education are soaring due to severe budget cuts at the federal, state and even institutional levels. Throw into the mix an uncertain economy, widespread job loss and a stock market slump, and middle-income and even upper-middle income families are frightened.

But Vincent Waterhouse, president of GetCollege.Com, Inc., says that families can save up to 50 percent or more on the total cost of attendance if they are armed with the right information. There is a lot of myth and misinformation out there that can cause families to make bad financial decisions, he says.

Waterhouse, who advises families with college-bound children, states that middle-income Americans, the backbone of America, have been especially hard-hit when it comes to paying for college. With todays economy, 401(k) plans down, the stock market tanking, and the total cost of attendance at a college or university increasing three times faster than the rate of inflation, middle-income and upper-middle income families are experiencing what is known as financial meltdown, he explains.

Compounding the problem is the kind of advice they are getting. These families with college-bound students are about to make the biggest investment they will ever make concerning their childs future, and they make their decisions based on a 15-minute conversation with a 50-something guidance counselor named Mildred, who has had limited if any training in the complexities of higher education financing, bemoans Waterhouse.

Making matters worse is the antiquated federal methodology used for determining who is eligible for assistance. Based on formulas designed in 1965, the government estimates that a family of five with one child in college can live on $23,000 a year. Thats your electrical bill in L.A.! says Waterhouse.

There is a lot that the federal government and the institutions themselves dont want the public to know, says Waterhouse. The following are five of the most pervasive myths that are working against families with college-bound kids:

Myth 1 -- Only Low-income Families Get Financial Assistance

Financial assistance in the real world of higher education is given to everyone. Parents must understand what the true definition of need-based and need-blind means. To reduce the total cost of attendance at both public and private institutions, families must understand the practices and principles of tuition reduction, tuition overrides, ward of the court, and retention grants. How is the average American family supposed to figure out what sort of financial aid package is right for them? It takes a lot of knowledge and planning to figure out the best way to acquire college financing.

Myth 2 -- There are Billions of Dollars in Scholarships

Of the so-called billions in scholarship funding only about five percent ever get awarded, says Waterhouse. We call these carpal tunnel scholarships because you must write out 50 to 60 applications in hopes of getting a windfall of $1,000. Now if you waive that $1,000 in front of a financial aid officer, you could lose up to $3,000 in aid dollars that the institution was already going to give you. In fact, Waterhouse says that colleges are very reluctant to lose good, academically minded students. They will find the dollars to help them stay in school if they need financial assistance. All schools have their own grant funds, they can even tap into their own piggy-bank of endowment funds if need be. Princeton University has been helping middle-income and upper-middle-income students with their endowment funds for years, he adds.

Myth 3 -- Loans Are the Best Way to Pay for College

When a student graduates from college with thousands of dollars in loan debt how is he or she going get a decent apartment, a car that really runs and even entertain the thought of having a family? asks Waterhouse. Our children are buried in debt before they have a realistic understanding of what debt really is. Waterhouse recommends that families avoid large loans at all costs and do a financial self-evaluation of all their options for financial assistance while their child is in their junior year of high school.

Myth 4 -- You Must Have a Very High GPA to Get Into an Ivy League College

Although first-tier colleges and universities court students who have exceptional grades, they look at a variety of factors when making admission decisions. In todays world, the high school population is more academically armed and your better schools understand this, so they now are looking for a more angular student to keep the balance in their student selection. Remember, colleges admit human beings, not numbers, cautions Waterhouse.

Myth 5 -- Families Shouldnt Seek Help with Educational Firms That Charge a Fee

Financing a college education has become more complex than ever in recent years. Americans seek the services of professionals in the fields of law, medicine, accounting, real estate, financial planning and a host of other services, says Waterhouse. Higher education is no different. The uneducated consumer needs help understanding the complexities of the higher education market.

GetCollege.Com, Inc. provides services for families with college-bound kids that cover everything from completing the FAFSA form, CSS Profile, the admissions application, college selection, and obtaining adequate financial aid. All services are tailored to each students abilities and their familys needs. Unique to this firm is that we stay with the family and student for the entire four to five year enrollment, adds Waterhouse.

I want to transform educational needs into educational solutions, emphasizes Waterhouse. I cant stand to see money become a barrier in developing our future. I do not want to see anything stop a child from getting a college

A Lesson in Opportunity Cost

By Joshua Kennon

One of the fundamental principles of finance is the concept that $1 today is more valuable than $1 a year from now. The reason for this is two-fold. First, a dollar will probably buy less goods and services in the future due to the destructive force of inflation.
  Second, if I have the dollar in my hand today, I can invest it and earn a year of profit or interest.

The best money advice anyone can ever give you is to firmly establish this time value of money concept in your head. The key to financial prosperity is realizing the potential value of every dollar that comes into your hands. In fact, I think of cash as a seed you can either eat it (spend it) or invest it (sow it).

To help illustrate this point, lets assume you find a $20 bill on the side of the road. You are faced with two potential uses: you can stick the money in your tax-free retirement account or take yourself out to dinner. Its only twenty bucks! you say to yourself and opt for the dinner. In reality, you are spending far more. Using one of the time value of money formulas, we can calculate the real economic cost of not investing the cash.

FV = pmt (1+i)n
FV = Future Value
Pmt = Payment
I = Rate of return you expect to earn
N = Number of years

To perform the calculation, we have to make a few assumptions. First, lets assume you are 30 years old (and hence 35 years away from retiring at 65). That means that the $20 can compound for 35 years. We will substitute 35 for n in the equation.

Next, lets come up with your expected rate of return. Historically, the stock market has returned 12%. If you want to invest in bonds, your return will be lower. Lets assume that you invest in a combination of both and over time, you expect to earn a 10% rate of return. This will be substituted for the i variable in our equation.

The pmt, or payment, is the value of the single amount you want to invest (in this case $20). Now that weve figured out the numbers to plug in, our formula looks like this: FV = $20 (1+.10)35

Enter 1.10 into your calculator (this is the sum of 1+.10). Raise this to the 35th power. The result is 28.1024. Multiply the 28.1024 by the pmt of $20. The result ($562 and change) is the true cost of spending the $20 today (if you adjusted the $562 for inflation, it would probably work out to about $140 in todays dollars. That means your real purchasing power would increase approximately 7-fold).

Clearly, this is enough to buy an entrée at a five-star restaurant! Armed with this knowledge, you are free to make an economic decision; namely, would you prefer to eat a $20 meal today or a $140 meal in the future. The answer is entirely personal. Once you understand this concept, however, it becomes painfully obvious that the small luxury items you think nothing of are really costing you millions and millions of dollars in future wealth.

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