Can You Still Help Pay for College?

When considering whether you can afford to help the grandkids with college tuition, it might be a better idea to look out for yourself first.

By Adam Ritt

"If you want to make God laugh," Woody Allen said, "tell him about your plans." Helping grandchildren pay for college has long been a goal for grandparents. In a 2003 survey by AIG SunAmerica Mutual Funds, 54 percent of grandparents said they were either helping with college costs or planning to do so. But as the value of many stocks has dropped by 40 to 50 percent over the past year, investment accounts set aside to help grandkids with tuition payments have been decimated.

The plunging market has left many grandparents concerned about whether they’ll be able to give their grandchildren any college help at all. Those concerns might be magnified if your grandchildren are in their early school years and you’ve been following traditional college-savings advice, investing your funds in higher-risk stocks when kids are young, with a gradual shift to lower-risk investments as they approach college age. In fact, if you have both younger and teenage grandchildren, you may find that the stock market downturn has created major imbalances in their accounts because of different asset allocations.

Time to Look Out for Yourself?

It might sound difficult to turn away from college funds when they're at their lowest, but financial advisors agree that in the current economic climate, grandparents must put their own needs first. "People will loan your grandchildren money to go to college, but they won't loan you money for retirement," says Jeffrey Daniher, the co-owner of Ritter Daniher Financial Advisory in Cincinnati and the father of three college-bound students. Daniher says he has emphasized this message to clients in recent months.

During a downturn like this one, Daniher says, retirees must maintain flexibility by keeping their financial assets in their own names in case they need to tap them. Above all, grandparents should avoid selling investments at the worst possible time — when the market's dropping — to maintain investments in a child's college fund.

Financial issues are often difficult to discuss with families, but a candid conversation about your financial situation will make clear to your children and grandchildren your ability to help with college bills. Without making promises you may not be able to keep, you can say that you intend to help support your grandchildren's college plans but that at this moment, you need to have access to the funds you had earmarked for them.

What to Do With Funds Right Now

If you're still able to contribute to your grandchildren's college funds, some advisers suggest looking into bond funds that have been beaten down somewhat, but are now paying about 6.5 percent. You can move the bonds over to stocks when the market begins to recover.

If you need to limit regular investments in your grandchildren's college funds, consider making contributions to their accounts in lieu of birthday or holiday presents. Or you could help them locate alternative sources of funding, such as scholarships from organizations you've been involved with.

All grandparents want the best for their grandchildren. In the current circumstances, the financial assistance you can offer may be limited. But you can still help kids prepare for college by sharing your knowledge, boosting their confidence, and offering them a role model of responsibility and optimism in tough times. In the end, your grandchildren will get the college education they deserve, even if they have to work part-time, take on loans, or rely on financial aid to make it work. And they'll know that you've done all you can to support them.

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