The best advice I’ve ever heard about sending your kid to college is this: Your kid can get a loan to go to college but you can’t get a loan to retire on. While this is excellent advice, none of us wish for our children to come out of college with $100,000 in debt! Here’s some food for thought on education expenses.

• “I hear that you can cut ties with your children and they can get more financial aid.”

This is true, but with a lot of strings attached. The proper term is “emancipated minor.” This is a legal status, determined by a court in your state of residency. It must be determined before the child turns 18. The emancipated minor then fills out the FAFSA forms without any parental financial information and receives qualified education grants. Otherwise, the child is dependent on his/her parents and must include parental financial information on the FAFSA. This is true even if the child does not live with the parents, and/or the parents can’t or won’t contribute to the child’s education. This continues until the child is 24. If the child is older than 21 but not yet 24, is ‘unaccompanied’ (no family reliance) AND is homeless or self supporting and at risk of being homeless, the child can indicate on the FAFSA that there are special circumstances and call the school of choice to explain.

• “I don’t want my child to have to emancipate themselves, and obviously homelessness is not a great option. Any other ways that my kid can leave my income and assets off the FAFSA?”

As mentioned above, at age 24, a student becomes independent for financial aid purposes. Other factors allowing the student to be treated as independent are: married on day of filing the FAFSA, enrolled in graduate school, providing more than half the support for a household including individuals the student can claim as a dependent on their tax return, in the military or a veteran of the military.

• “What can I expect from financial aid?”

Obviously, this will differ according to school policies and the parent and student financial information submitted. Your child can get a federal direct unsubsidized loan for $5,500 up to $20,500 per year, if they enroll at least half time. The loan is in the student’s name, the interest rate is 6.8% and the student owes the interest while still in college. It is not contingent on financial need. This is the best way to have your student earn a ‘vested interest’ in his or her education. Other monies include scholarships – I can’t stress it enough APPLY EARLY AND OFTEN!! – and other federal loans. There is a nice summary of federal programs at www.studentaid.ed.gov (loan programs fact sheet) that lays out who can borrow what and when. There is one more option…..

• “I’m not financially needy and I’m not rich – I’m just the average middle income American. What can I do?”

If you have unborn or young children, the best thing you can do is educate yourself about the tax deferred options for savings. The simplest one to start is a Coverdell Education Savings Account (ESA). It can be opened at any bank and set up for any designated beneficiary under age 18. So mom and dad, uncles and aunts, grandparents and friends can contribute money, as long as their adjusted gross income is less than $220,000 ($110,00 for singles). The total that can go into the account(s) for one beneficiary in any given year is maxed at $2,000. The neat thing about the ESA is that it can be used for private or religious elementary and high school education! So instead of buying the baby something else he doesn’t need, have the family contribute to an ESA.

The next thing to do is set up a 529 plan. You will need some help with this, as there are several options available. The basic idea is the same as the ESA – saving money now and the earnings are tax free if you pull them out for education. There are differences from the ESA – there is no adjusted gross income limit for the contributors, and there is no yearly limit on the total contribution (although a contributor can only donate up to $65,000 at one time, and the total 529 plan cannot exceed around $300,000). This type of plan can be used for college and graduate school, but not for private or religious K-12 education. There are two types of 529 plans – prepaid tuition plans and savings plans. You do not have to buy a 529 plan in your current state of residence. You will need to analyze the returns on the plans; where, when and how the funds can be used; any state imposed limits; and state tax return credits when you set one up.

Planning ahead while your kids are young is the best way to show them that education is important to you. While your kids should have a vested interest in their education, your help will be appreciated!