College: 10 Questions

Jonathan Clements

GOT COLLEGE-BOUND kids? Make sure you and your children are on the right track financially—with these 10 questions:

  1. Can you afford to help your kids with college costs? It’s important to talk to your teenagers early on about how much financial assistance you can offer—and that’s doubly true if they’ll need to shoulder much or all of the cost.
  2. Will your family receive needs-based financial aid? Use the EFC calculator at to figure out how much aid you might get. EFC is an abbreviation for expected family contribution.
  3. Are you funding a 529 college savings plan? This is the best savings option for college savers, thanks to the plans’ tax-free growth and limited impact on aid eligibility.
  4. Should you shutter custodial accounts? These used to be a popular choice for parents looking to help their kids. But you may want to close your children’s custodial accounts, even if it means paying capital gains taxes, and move the proceeds into a 529. Thereafter, you’ll enjoy tax-free growth—and you should improve your family’s chances of receiving financial aid.
  5. Are you investing college savings too aggressively? You’ll likely empty your children’s college accounts before you start to dip into your own retirement savings, plus the college money will be spent over a brief four-year period. The implication: You should probably be taking less risk with your kids’ education funds than with your own nest egg.
  6. How much can your children reasonably borrow? Much depends on their eventual career and likely earnings. A rule of thumb: After graduation, your children shouldn’t be devoting more than 10% of their income to servicing college loans. That cap should guide their college choices and hence how much they borrow.
  7. Do you have a home equity line of credit? Thanks to their low rates, home equity lines of credit can be a great backup source of college money.
  8. Have you checked whether you qualify for any of the education tax breaks? The various credits and deductions all have income thresholds.
  9. If your children will soon enter college, is it time to empty your checking account—and pay off consumer debt? Money sitting in regular taxable accounts will hurt you in the aid formulas, while credit card debt and auto loans don’t improve eligibility. Result: Using spare cash to pay off these debts will improve your chances of financial aid, plus it’s typically a smart financial move.
  10. If you’ve graduated, should you consolidate your student loans—and perhaps apply for an income-based repayment program?

This is part of a series of 10 articles devoted to key questions to ask. You can find links to the other articles here.

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