College Finance Tips for 40-Somethings: Fighting a 2-Front War
In decades past, people in their 40s had largely already put their own student-loan debts behind them and were able to turn their attention to preparing to help their children pay for their educations. More recently, though, educational debt has become a persistent trouble for Americans, weighing down their finances well into adulthood.
Indeed, a 2013 Federal Reserve Bank of New York study showed that student-loan delinquency rates among those 40 to 49 were the highest of any age group as of the fourth quarter of 2012 -- more than 16 percent -- with other age groups falling in the range of 9 percent to 13 percent. With a third of student loan debt held by Americans over age 40, many parents don't have the luxury of being able to give their children's education as much financial attention as they'd like.
Yet for those who have children, the 40s are often college-savings crunch time. To fight back against student debt on both fronts, let's look at some tips to help you juggle all the issues you face in your 40s.
1. Finalize Your Own Payoff Plan.
If you still have your own debt outstanding, you should establish a firm plan on when and how you'll get it paid off. Most borrowers who've extended their loan repayment plan into their 40s have already taken advantage of programs like consolidation or income-based repayment options, so in many cases, all you'll need to do is project current payments forward to get a firm handle on your cash flow and what impact your loans will have on your overall finances, both for yourself and your family.
2. Ramp Up Saving for Your Kids.
Regardless of whether you've paid off your own loans or still have further to go, you'll want to look into taking greater advantage of tax-favored 529 plans and other college savings vehicles as your kids enter their teens. Even if you're late to the college-savings game, anything you can set aside for your kids will help reduce their own eventual loan burden while also potentially giving you access to state income tax benefits and other tax breaks. With those in their 40s often starting to get into higher tax brackets, saving through a 529 plan can be an even better deal than it was earlier in your career.
3. Start the Scholarship Search.
Student loans get most of the attention in the college funding discussion, but free money from scholarships that you never have to pay back is obviously far more valuable.
4. Focus on Financial Aid.
As your kids approach college, it's also important to get your finances in order so that you maximize the amount of financial aid your children will qualify for. That means getting smart about how financial aid works and how schools take your assets into account in determining whether your kids qualify for aid packages. The rules governing financial aid are sophisticated, but in general, keeping assets in parents' names is smarter than having assets directly in a child's name. Moreover, certain assets, such as your personal residence, retirement accounts, and insurance policies, are exempted from the financial aid calculation, making it smart to consider shifting assets well in advance of your children reaching college age in order to put them in the best position possible to maximize their aid eligibility.
You Can Win Both Battles
Even 40-somethings who are dealing with their own student-loan debt as well as having to pay for their kids' college education can succeed in accomplishing both tasks. It's not always easy, but by paying attention to these four areas, you'll be in the best position to handle your entire family's educational finances.
You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.