Saving for college when time is on your side

According to the Federal Reserve, the average amount of student loan debt carried by a student graduating in 2012 reached a staggering $24,301. And that isn't the only scary student loan statistic. Overall, student loan debt in the U.S. has reached a cumulative $902 billion dollars, and loan delinquencies are at an all-time high. This is depressing news for everyone, including those of us who want our children to be able to go to college.

Saving for an unpredictable future

Since my kids are so young, I shudder at the thought of what a college education could cost when they graduate from high school. College tuition has outpaced inflation at an astronomical rate. And worse yet, the job outlook for college graduates isn't all that great. In addition to all of that uncertainty, I've found it difficult to do much planning since there are a gazillion possible outcomes. Will my kids go to community college? An in-state university? Will they pursue an advanced degree? At this point, I cannot possibly answer these questions. Still, I haven't lost hope that I can help them avoid taking on a soul-crushing amount of student loan debt. I certainly can't predict the future, but I can at least try to prepare for it. And while I don't necessarily plan on paying for all of the costs of my kids' college education, I do want to help them as much as I can.

Since I want to shield my children from having to take out enormous student loans, I started saving for their college right away. Once they were given Social Ssecurity numbers, I opened a College 529 account for each of my kids. It was easy to set up their accounts online, and I slowly began putting away small amounts of money on a fairly consistent basis. And I mean s-l-o-w-l-y. When we started saving for them, we began by contributing only $25 per month.

Small sums of money add up

It took a while to see any real growth, but I'm amazed at what I've managed to save during their short little lives. I've actually been able to build up a decent amount of money for them, and it's a great relief knowing that I've managed to save something. I've still got a long way to go, but I did manage to get started and I hope to increase contributions to their accounts steadily over the years.

Saving for college may seem like an impossible feat, but it can be done. If you haven't started saving for your children's college, and want to, here are some tips to get started.

  • Make sure that your own finances are in order. Before you start saving for your children's college education, make sure that your own financial house is in order. Are you saving adequately for retirement? Do you have an emergency fund? Are you in debt? Saving for your children's college education is admirable, but it shouldn't be at the cost of your own financial well-being. Once you have your own finances in good shape, you will be in a better position to help your children with theirs.
  • Open a tax-advantaged college savings account for your child. Do some research online and determine what plan is best for your child and situation. I chose my state's college savings plan because of low administration fees and investment choices that I was comfortable with. It's important to note that United States residents are not limited to investing in their own state's plan. Compare plans and choose one that your family is comfortable with.
  • Explore tax advantages for your savings plan. The state that I live in, Indiana, generously offers a 20 percent tax credit on the first $5,000 I put into my children's 529 plans. This means that I make an instant 20 percent on the first $5,000 that I contribute in any given year. Many states offer a tax credit for money saved in a 529 plan. Check with your local government and determine what tax benefits may be available to you.
  • Start small. The future costs of a college education could be overwhelming, and it's easy to put saving off for another day. Start by making small monthly contributions to your child's account. The sooner you start, the better, and small amounts can accumulate and grow tremendously over time. When we started saving for our children's college education, we were still in debt. Since we were still getting our own act together, we started by contributing $25 per month per child. That amount has grown over time, but I'm still thankful that we started when we did.
  • Make savings automatic. Many online bank accounts will allow you to make your monthly contribution automatic. Set up an automatic savings plan and “set it and forget it.” Even small contributions can add up over time. This is especially true when money is saved automatically on a consistent basis.
  • Add gift money and found money to their accounts. Whenever my children get money for birthdays or holidays, it goes straight into their college savings accounts. This can often be several hundred dollars per year and is a great addition to the money we choose to save for them. Letting their gift money grow over the years is a great deal for kids and parents alike.
  • Ask family and friends to contribute. Make sure that family  and friends are aware of your child's college savings account and encourage them to contribute in lieu of gifts. Of course, this may go over with some family members better than others. Still, there is nothing wrong with making people aware of your education savings goals. You may even find that family members actually want to contribute.

The thought of saving for college can be paralyzing, but it isn't that hard to get started. Just remember that it doesn't have to be “all or nothing.” Even if you are only able to save enough money to pay for part of their education, it's still better than not saving anything at all. A huge commitment doesn't need to be made, and setting up a 529 plan is usually easy and painless. Don't let anything stand in your way and don't get discouraged by statistics or scare tactics. Instead, channel your energy into your savings goals and enjoy watching your college fund grow.

What methods are you using to save for your children's college education?


More about...Education

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
81 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Kati
Kati
7 years ago

Great post. While I don’t have children yet, I do hope to have them in the next year or so. When they do appear, I want to start saving for their future from the onset. Like you say it’s not about putting away a fortune but just a little bit regularly. I figure if I put in $2000 into some high yield shares, after 18 years there will be a nice sum that can pay for a college education or at least a part of it.

Michelle
Michelle
7 years ago
Reply to  Kati

I actually “beat the system”. I also am at the luxury of having the sweet 20% Indiana deal.

I started saving for my daughter’s college education years before having my daughter.

I socked away money in a 529 account under my nieces SSN (you can actually do it under your own SSN now). When my daughter was born I transferred most of the money from my nieces’ account to my daughter’s account. When my daughter was born, she already had $20,000 in her 529 account. That started with just saving $25 a month.

Steven J Fromm
Steven J Fromm
7 years ago
Reply to  Michelle

That transferability feature is one of the best things about the program and in most states it can be transferred to most anyone.

Adam - HireMeHigherEd
Adam - HireMeHigherEd
7 years ago
Reply to  Kati

@Kati – Unfortunately, I don’t think $2000 lump sum invested would yield the amount you think when compared to the estimated cost of a college education in 18 years. I would recommend continuing to contribute small amounts ($25 or $50 per month as mentioned by the author) to pad this account, and take advantage of dollar cost averaging. Best of luck!

Jenny @ Frugal Guru Guide
Jenny @ Frugal Guru Guide
7 years ago
Reply to  Kati

$2000 a year? Likely. $2000? Won’t scratch the surface.

Kati
Kati
7 years ago

Haha, sorry my mistake. That was supposed to be $2000 a year which works out to be about $40 per week.

Wm
Wm
7 years ago

I know. College costs are staggering. My advanced degree cost a huge hole in my parents’ pocket and I haven’t even got the expected ROI out of it. It’s the second biggest regret of my life. If I could go back in time and undo it, I would. I would have been much happier with my engineering degree and the job I got after that. But hey, this is all very hindsight 20/20 and you can only connect the dots backwards.

Short arms long pockets
Short arms long pockets
7 years ago

I didn’t start neary early enough but managed to get the first kid through (in-state university) debt-free and am now working on the second.
As a result the graduate was able to take her dream job overseas. I truly feel that it is the best gift we could have given her.
Looking back, I would say to anyone with kids that Holly is absolutely right – every little helps.

Holly@ClubThrifty
7 years ago

This made me tear up!

This is EXACTLY why I am saving for my kiddos college. I want them to be able to follow their dreams without having to worry about a ridiculous amount of student loan debt.

The Norwegian Girl
The Norwegian Girl
7 years ago

Since tuition is free in Norway, there really hasn`t been any tradition for parents to save for their children`s education. we do have to take up student loans and grants to have something to live on. Still, I think that when I one day have kids I`ll probably save money for their education.

graduateliving
graduateliving
7 years ago

I love the note about letting people know contributing is an option. A girlfriend of mine had her first about a year ago and number two is on its way. I would love to be able to gift them money for a 529, since they don’t/won’t need anymore stuff. Particularly when kids are super-young and don’t know any better (i.e. the first few years of life) I think making those contributions can be a more meaningful gift.

Elizabeth
Elizabeth
7 years ago

I second the point about asking friends and family to contribute! My nephew has more toys, books and clothes than he needs, and my SIL can find them at better prices than I can anyway. (Thanks to hand-me-downs and consignment stores.) They’re excited to be building a college/university fund for him and many of my family members are contributing. One thing we learned when talking to financial advisors is that the amount the government contributes is limited to child, not the contributor. (In Canada, it’s 20% on $500 per year.) For now, we’re giving the cash to the parents and… Read more »

Marsha
Marsha
7 years ago

We’re about 25% through our goal of getting our sons through college debt-free. The crunch time begins this fall, when our younger son joins his older brother at college. We did not open 529s for our kids, since we were concerned about the effect money in their names would have on their ability to get government grants and loans. Instead, we concentrated on saving as much as we could in our retirement accounts, paying down our mortgage, and paying off any other debts. We also worked with them throughout high school, encouraging them to take honors courses and to get… Read more »

Matt Becker
Matt Becker
7 years ago
Reply to  Marsha

Marsha, congrats on getting your kids so far through school! Scholarships are definitely a great way to make a big dent in the cost. Just wanted to clear something up from your comment. A 529 account is counted as a parental asset, whether owned directly by the child or by the parent with the child as a beneficiary. You can see a more detailed description here: http://www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php.

Parental assets factor much less into the financial aid calculation than assets owned directly by the child. This is another reason a 529 can be a great tool.

Marsha
Marsha
7 years ago
Reply to  Matt Becker

Is this a recent change? When we decided to go this route 20 years ago, our research showed 529s counted as student assets. I still think home equity and retirement accounts were the way for us to go. They don’t count as assets for parent or child on the FAFSA. And you don’t have to spend them on qualified expenses.

Matt Becker
Matt Becker
7 years ago
Reply to  Marsha

Based on the link in my previous post, it looks like the change was made for 2009-10. So when you were deciding it was very likely different. I definitely understand why you went the route you did and I’m glad it’s worked out for you. While I absolutely agree that retirement accounts should be maxed out before saving for college, I think it’s risky for most people to use retirement accounts for college savings. Retirement is so important and using that space for other purposes is, for many people, not the right move, even if it’s right for you. Also,… Read more »

Jane
Jane
7 years ago

I am curious why Holly didn’t explore the pitfalls of 529s, of which there are several. First, all that money earmarked for education will effect your financial aid. They say it won’t, but honestly I don’t believe them. 🙂 I have this paranoia about 529s for some reason. We have one set up for our kids, but I would encourage parents to diversify their college savings, just like they do with their retirement. What if the state in which you have your 529 is not solvent or goes bankrupt? I know that sounds paranoid of me, but there are cases… Read more »

Holly@ClubThrifty
7 years ago
Reply to  Jane

I don’t blame you for being paranoid, but my children’s 529 accounts are currently considered parental assets, not assets of my children. At this point, I don’t have any reason to be paranoid…but you’re right. Rules could certainly change by the time my children hit college. Unfortunately, I don’t know what the future will hold. I am mostly saving in the 529 accounts to take advantage of my state’s generous tax credit. However, we are somewhat diversified in our college savings. We have two rental properties that will be paid off right before my kids graduate from college, and I… Read more »

imelda
imelda
7 years ago

I think she’s referring to the fact that, very generally, the greater your assets, the greater your “expected parental contribution” will be. 529s will certainly be counted towards that. It’s hard to say what’s best in advance, because who knows what school your child will want to attend, and how much grant money that school will be able and willing to supply. 529 money *could* decrease the amount of loans required…. or it could decrease the amount of grant awarded, thereby becoming a colossal waste of money. Given such uncertainty, I have to say that an above commenter’s strategy of… Read more »

Holly@ClubThrifty
7 years ago
Reply to  imelda

Sure, but whether I save my money in my children’s 529 accounts or elsewhere, it will still be my asset.

I’m in total agreement and saving for retirement and paying off my mortgage. In fact, my mortgage should be paid off while my kids are still in grade school if everything goes as planned. However, I personally wouldn’t feel comfortable withdrawing money from my Roth IRA because it is part of my retirement savings. But, to each their own. Saving is a good thing and there are lots of ways to strategize.

sarah
sarah
7 years ago
Reply to  imelda

I think the difference is that if you pay off your mortgage that is actually not an asset and wouldn’t disqualify your kid like a 529 might.

Mom of five
Mom of five
7 years ago

But Jane makes a good point. Our oldest is currently a sophomore in high school and I’ve been looking into all the funding stuff. Typically a college will expect to take up to 50% from a 529 account each year before tapping other sources, like parents’ savings. Because they’re officially retirement accounts, Roth accounts weigh even less against aid than regular savings accounts. We’re not expecting any aid. We should be able to pay for state school without too much difficulty. We have a small 529 but have been doing Roths since we were eligible for them via conversion. We… Read more »

Danielle
Danielle
7 years ago
Reply to  Jane

Encouraging them to attend state schools is NOT necessarily the cheapest way to go. If you are even remotely middle class, you won’t get a penny in aid from state schools–only offers of loans. As a financial planner, the people I see with the biggest education debt for undergrad work all went to state schools. You have to look at the cost of attendance. With private schools, there is some discretion in how they award their own money, and a great private school can cost much less depending on what offer they extend. Also, if you’re eligible fully funding a… Read more »

Jane
Jane
7 years ago
Reply to  Danielle

Danielle – you’re probably right, depending on the parent’s assets or lack thereof. But I say that about state schools, mainly from my own experience. My parents were extreme savers and really got dinged for it on my private school education. Even though tuition in the 90s was $20,000 a year (NOT including books, housing etc), we didn’t get a dime in grants or financial aid. And this is from a household that never made over 50,000-60,000 a year. But since my parents saved their whole lives, we were expected to pay it all. In that case, it would have… Read more »

Belleweathe
Belleweathe
7 years ago
Reply to  Jane

While the feds might agree to count a 529 as parents income, if you’re looking at a private school, they can do all sorts of wacky things when it comes to deciding if you’re eligible for their own private institutional aid. If you’re low or moderate income, institutional aid can be the thing that makes a private college not only affordable, but even cheaper sometimes than state school, so it’s worth being very careful about how you save money for your children.

My Financial Independence Journey
My Financial Independence Journey
7 years ago

In addition to saving money, you should make sure that your children take school seriously. If they’re B students, you’re going to be paying for everything. But if they’re A students, they might get scholarships, which will help out a lot.

I worked my tail off in high school, which is how I managed to go to college for free. It’s a question of priorities. I traded in the often called “best years of my life” for a free education.

Holly@ClubThrifty
7 years ago

Oh, I definitely will….but they are only 3 and 1 right now. =)

Beth
Beth
7 years ago

Agreed! I don’t think we’ll be able to give our kids much for college, but I know we’ll do what we can to help them with AP courses, taking community college classes during the summer, etc.

We will also let them live at home after college, if that’s feasible for them. If nothing else, at least they won’t need to worry about rent, food, etc., and can pay down their loans a lot faster.

Matt Becker
Matt Becker
7 years ago

This is a great article and really hits the high points. I especially like the point about focusing on yourself first. Saving for retirement is a big priority that needs to be put before college savings. But if you’ve got that stuff handled, I definitely agree that even contributing a small amount is a great idea. My wife and I currently put $50 per month into our son’s 529, which won’t add up to vast sums but gets the ball rolling. Hopefully we can increase that amount in the near future. One point I want to mention is that you… Read more »

nicoleandmaggie
nicoleandmaggie
7 years ago

We’re using Utah’s 529 because our state doesn’t give benefits and Utah is low fee and offers good options from Vanguard. It’s been easy to donate pretty substantially to the 529 while my husband has been working, but now that he’s quit his day-job we’re a lot less certain about what the priority of our investments should be. We’re on track for retirement savings and I’m contributing 12% of my income to retirement going forward. We also have a mortgage at 4.75% and probably 12 years before our oldest hits college (17 before our youngest). Because of some extra work… Read more »

mike
mike
7 years ago

See my note comment # 29. Fund your roths first after any matching 401k %, if need be you can take contributions out tax or penalty free. Unless your more comfortable and want to be debt free.

nicoleandmaggie
nicoleandmaggie
7 years ago
Reply to  mike

It’s a bit more complicated than that. And the 12% is including the match.

Phoebe@allyouneedisenough
7 years ago

This is something we’re thinking about a lot lately. We plan on trying to have our first child within the next year and once we have enough saved to buy a house in full (~$300k) we’re going to start saving for their college education. But like the poster above, I’m not sure if we’ll use a 529. Right now we’re thinking of saving ~$100k per kid, which they will get no matter what. If they go to an expensive priviate school they can take out loans to pay the different and if they get scholarships they get a nice chunk… Read more »

William @ Bite the Bullet
William @ Bite the Bullet
7 years ago

The principle of starting early, even if it’s small, is universal for all investments. I know I may be the odd one out for saying this, but I’m not convinced parents are responsible for funding kids’ college education, especially not at retail rates. My mom told me early on I’d be on my own, which kept my nose in the books to get a good scholarship. That, right there, probably did me a lot more good than if they funded my undergraduate ed. I did my Masters part-time, and used a windfall to fund my Ph.D. I know I’m not… Read more »

Juli
Juli
7 years ago

I agree that parents should not be expected to pay for their kid’s college expenses. But if they can, I think at least helping out is a huge way of supporting your child. If they are failing their classes and partying every night, then yeah, tell them you are cutting them off. But if they are truly trying to get all they can out of their education in order to make a better future for themselves, then I am all in favor of parents helping out. I watch the Suze Orman show, listen to Dave Ramsey when I can, and… Read more »

Honey Smith
Honey Smith
7 years ago

I think the reason a lot of parents feel obligated is that (as other commenters have pointed out) parental assets affect the financial aid a child can receive. So if you’re fairly well off, your children won’t get much in the way of need-based aid (even if you never intended to pay for their college expenses).

Marsha
Marsha
7 years ago

I’m certainly not legally obligated to help my sons get through college; perhaps not even morally obligated. But I believe it’s the financially smart thing to do, for the family as a whole. It gives my husband and me better financial security to have children who will have well-paying careers and aren’t saddled with debt. We won’t have to support our grown kids or our future grandkids in our old age. In fact, although we’re planning not to need financial help after retirement, our sons frequently express how they’re going to care for us in our old age. We are… Read more »

sarah
sarah
7 years ago

My husband and I have been going back and forth about college savings. He wants to start saving but I feel like it’s more important for us to get our own finances in order and that with a paid off house and no other debts we will be able to contribute a lot out of pocket come college time. I’m guessing it would be better from an aid standpoint too because we wouldn’t have huge savings to disqualify us. My parents did not save for my college but they paid off their house and had no debt so that when… Read more »

James
James
7 years ago
Reply to  sarah

This is EXACTLY our approach. My wife and I are not worrying about dedicating specific savings to our kids’ college educations. We’d rather pay off all of our debts (including the house) and maximize our personal savings in such a way as to just be in the financial position to contribute whatever amount we see fit to our kids’ education, if any at all when the time comes. The short version: make ourselves rich, then pay for their educations if we feel like that’s the best decision for them when we get to that point.

Alex C
Alex C
7 years ago

I have heard that some colleges allow you to pre-pay for college. You can purchase today’s price of college for tomorrow. Although I do not know how early you can pay and the exact rules.

However, if your kid is a freshman in college and you pay for their senior year of college, that would save about 12% because every year the cost of college continues to increase by 3% on average.

Pre-paying the education though is a way to save a little bit of extra money for college

Martha
Martha
7 years ago
Reply to  Alex C

A number of states have some sort of program where you pay for future tuition using today’s prices. In Texas it’s the Texas Tuition Promise Fund. http://www.texastuitionpromisefund.com/
We told the grandparents that, in lieu of B-day gifts and such, they could make contributions in their grand-daughter’s name. Between contributions from us and them, we’ve got the first year of our 5-year old’s college tuition covered! The fund does not include all of the other college-related expenses (room, board, etc) but it is a good way to help slowly pay down some those future costs.

Abby
Abby
7 years ago

One thing that I think is interesting is the assumption that our kids will automatically want to and be able to go to college. It seems like this is just an understood fact in our society. But what happens if your child isn’t interested in pursuing a traditional college education? What if they want to and are able to get a job straight out of high school? What if they want to travel overseas or move out on their own? Maybe it wouldn’t be so bad to diversify savings vehicles, especially if there are penalties for using 529 funds for… Read more »

Beth
Beth
7 years ago
Reply to  Abby

I think this is an interesting point, and I say this as someone who stresses the importance of a college degree to my children, day in and day out. (I say this because it seems like you need a bachelor’s for just about any job these days, even those that don’t technically need it…)

For myself, I don’t want my children to start working after high school and return to school “someday.” It is very easy to get caught up in working and never seem to return to school. Trust me, I speak from experience.

Andrew
Andrew
7 years ago
Reply to  Beth

We’re at a point where Associate Degrees and Trade Certifications are a better ROI than most Bachelors degrees. I know many young people who have found this out and are making $75,000/year two years out of high school in the trades.

While like you, I stress the importance of higher education, unfortunately I think society (universities perhaps) have told us the BS/BA is the only way to go, when it’s simply not true.

Kat
Kat
7 years ago
Reply to  Abby

@ Abby, very good point. I quickly learned that college was not for me and stopped going after wasting about four years (working part-time, taking part-time college credits). My parents also clubbed in about 10K in loans, of which they didn’t get any sort of return (since I did not finish with a degree/certificate). While I feel bad that they made a fruitless sacrifice on my behalf, they were also the type to say that the only path after high school is college. Granted, while degreed folks have better luck in careers, I found my luck the way of hard… Read more »

Kay
Kay
7 years ago
Reply to  Abby

I definitely agree. College isn’t for everyone.

Do 529s allow people to use the funds for post-secondary education of any type? Such as a trade school or vocational education? I would say that for *almost* everyone, some type of additional education after high school is necessary, but it’s not always in the form of a bachelor’s degree.

Chelly
Chelly
7 years ago
Reply to  Kay

I looked into this recently and the funds in a 529 can be used for almost any type of schooling, including vocational schools, community colleges, even semesters abroad if the program is affiliated with a school. You can also use the money for books, room and board and even technology, like purchasing computers.

Michelle at Making Sense of Cents
Michelle at Making Sense of Cents
7 years ago

We don’t have kids yet, but I do know that I would at least like to help them some with their college education. It’s so darn expensive!

SDO
SDO
7 years ago

There is also the option of having your high school aged children take CLEP and/or DSST exams for college credit. Each test, with proctor fee, is only about $100 and will give you between 3-12 credits (1-4 classes) per exam. Your child can be graduating with an associates degree at the same time he/she is graduating from high school. That greatly reduces college cost. And to sweeten the deal, three regionally accredited schools (the gold-standard of accreditation) accept all transfer credit credit except for literally 1 or 2 classes. Two of those are state colleges: Thomas Edison State College and… Read more »

SDO
SDO
7 years ago

For those who are in need of inexpensive college credits, New Mexico Junior College and Clovis Community College offer a wide variety of college credits totally online and their out-of-state tuition is dirt cheap. For example, out-of-state tuition for a whole semester at NMJC is $720 maximum and you can put that on a payment plan. NMJC has 16 week semesters and 8 week mini-terms so you could take 12 credits in one mini-term and 12 credits in the next mini-term. For that one semester you have earned 24 credits (almost a year’s worth of college credit) and it only… Read more »

mike
mike
7 years ago

Couple Notes After Reading Posts: -The Biggest Factor for most parents and students will be income. If you haven’t done it, do yourself a favor go to savingforcollege.com or some other site do the simple EFC (expected family contribution) and college tuition calclators based on age. You can play around with some of your financial #’s. If you make a decent salary your EFC will be very high regardless of savings. Which also means your child probably will not qualify for subsidized loans so if you don’t co-sign they won’t be able to get loans in many cases. -I’m hearing… Read more »

Emma | iHELP students loans
Emma | iHELP students loans
7 years ago

“It doesn’t have to be all or nothing” – exactly. Another possibly comforting thought: eventually, college will become so expensive, that market forcers will work to lower prices, possibly when fewer people attend college and fewer employers expecting a college degree. It’s also important to remember that often, the sticker price doesn’t reflect the actual cost, once grants and scholarships are taken into account.

mike
mike
7 years ago

-Actually I don’t find it comforting at all to put my or my childrens futures into others hands or what might possibly happen. Statistics have shown that employers are now requiring degrees for jobs that have not typically required degrees such as receptionist, clerks, office jobs, etc.. That’s why the unemployment rate for high school graduates is ridiculous. I don’t think market forces are going to do much, there might be some leveling off, but your not going to see much of a decrease from current high costs. Furthermore since most of the jobs that used to not require a… Read more »

Jenny @ Frugal Guru Guide
Jenny @ Frugal Guru Guide
7 years ago

Prepaid college plans are outpacing just about every investment these days. In our state, you can use them either at any public university OR you can take the average cash value and apply it to any college, anywhere. We have one for each kid!

imelda
imelda
7 years ago

What is average cash value in this case?

Juli
Juli
7 years ago

I personally think that the cost of advanced schooling is going to have to level off at some point. If the costs continue to increase at the rate they have the last few years, then at some point, it is going to be impossible for anyone but the very top to go, and that is not going to be to the advantage of the schools themselves. My boys are currently 2 and 4. We just recently opened up a 529. We only have one right now, since it seems silly to me to be paying the fees for two accounts… Read more »

Jenny @ Frugal Guru Guide
Jenny @ Frugal Guru Guide
7 years ago

If you are low income, however, you shouldn’t have anything. Not a PENNY. Every cent you save for them reduces financial aid by that amount. So if you are middle-middle class and won’t qualify for grants and need-based scholarships, save like crazy! But if you have a ton of kids and/or are at the low end of the income range, saving a little bit isn’t going to help your kid because it’ll come out of the grant side of his package rather than the loan side.

imelda
imelda
7 years ago

Yup. In college, I had to take out ~ $6k per year in Stafford loans, and my expected family contribution was about $800/year. The rest was needs-based grants.

One year I won a scholarship for ~ $2k. I enthusiastically submitted the award letter to my financial aid office, only to find out that they deducted the ENTIRE amount from my GRANT. I had hoped to save myself some of that much-needed $800 (I paid from summer jobs), or at least cut back on loans. Nope.

I still feel like I was robbed. 🙁

Honey Smith
Honey Smith
7 years ago

A couple of notes after reading this: 1) I personally would not describe my debt as soul-crushing. Irritating and inconvenient, yes. Soul-crushing, no. However, I got a job before I even graduated that enables me to make my monthly payments. Had that not happened, I am sure I would feel differently about it. 2) I am SHOCKED that neither Holly nor any of the commenters have brought up trade school as a way to avoid the costs of a university/college completely. While trade schools have costs of their own (and I’d LOVE to see an article on that! I have… Read more »

Lisa Aberle
Lisa Aberle
7 years ago
Reply to  Honey Smith

Honey – good thing you brought this up. I started my career by going to a trade school. It has paid off in many ways. Out of curiosity, I just checked tuition at similar trade schools. Tuition ranged from $500-$4000 a year. For two years, that’s a good deal.

Johanna
Johanna
7 years ago
Reply to  Honey Smith

I think it depends on how you view student loans. I am paying them off as fast as possible, and I will view them as ‘soul crushing’ until they are gone. But I know a lot of people that are perfectly fine taking the full 10 (or 20 or 25) years to pay them off.

payMyOwnWay
payMyOwnWay
7 years ago

I am not relying on any student aid for college tuition or any social security benefits for retirement. I am planning to pay my own way for my family when taking into account how much I need to save. Instead of trying to guess how much handouts and borrowed money you will get from your government, I suggest this route to make it more easier on yourself. For the ones that say it is hopeless and that they can’t save a penny, don’t worry, I will be paying for you.

Jake
Jake
7 years ago

It’s pretty crazy to do the actual calculations on how much your child will probably need which is why it’s great to start small.

I’ve already determined we’ll probably pay for around 1/2 of our child’s education and I’ve estimated this to be about $150 a month per child if that increases at 12% a year and college costs increase at 4% a year. When you break it down like this it’s not so bad, but these numbers get a lot higher if you don’t start right away.

Nice article!

phoenix1920
phoenix1920
7 years ago

I invested in my state’s prepaid college plan because although you can use it only in state for a state college or university, my state (and most states) has good colleges and universities so my children will be able to afford college. The one thing that I think is really missing from this article is to compare the risks and advantage of different options. The problem with the 529 is I think it is an investment plan. We are all so familiar with investing to save for retirement, but we’re to begin this investment in our early 20s and many… Read more »

Matt Becker
Matt Becker
7 years ago
Reply to  phoenix1920

Phoenix, you make a really good point that people need to understand the risk involved in their investments. I definitely agree that college savings have a much different timeline than retirement savings, and that needs to be taken into account. However, what you’re asking for with a “guaranteed decent return” really isn’t an option. Anything with a guarantee will come at a high cost and/or with much lower returns than what’s possible without that guarantee. Actually, you can basically get this guarantee by investing only in things like CDs, but as you say it’s very hard to save enough for… Read more »

phoenix1920
phoenix1920
7 years ago
Reply to  Matt Becker

This is the thing I think we really need to change. It is possible for this to occur in a private market setting. Let’s agree that the average ROI in the stock market is 9.6% on a long-term basis (which is what the data indicates from 1926 until 2012). I would be willing to invest in a product that guarantees me a 7% ROI where I don’t need to worry about volatility. This leaves the company with a 2.6% profit margin simply for being the buffer between market highs and lows. If a company did this, there would be times… Read more »

Cortney
Cortney
7 years ago

I think there’s one other thing to add here, which is ways to prevent college tuition from continuing to rise. Especially for state schools, organizing and lobbying your local representatives to increase funding for education may help reduce future costs. When education cuts are on the table, complain loudly. Write to your alma mater and tell them that the increases in tuition reflect poorly on you, and you’ll only donate money once the tuition increase is under some percent. It takes a lot of work, but as long as universities can get away with skyrocketing tuition and lawmakers can cut… Read more »

Rhonda Thomson
Rhonda Thomson
7 years ago

My husband and I have a credit card through Fidelity Investments that offers a “reward system” based on spending, much like a Discover card that gives you a percentage back. However, instead of sending us a check, the monies are deposited into a Fidelity-managed 529 account for our son. For us, people who pay off the entire balance every month, this works great. We charge our utility bills, groceries, gas, everything we would pay for anyway. Meanwhile, our son’s account keeps growing. We save money for our son’s education in other ways, as well. This account, however, just feels like… Read more »

Rhonda Thomson
Rhonda Thomson
7 years ago

This link will take you to a site that answers many of the questions people have been asking about 529s and financial aid, unused funds, etc.

http://www.savingforcollege.com/intro_to_529s/what-is-a-529-plan.php

David
David
7 years ago

Thanks for this post. Perhaps I can get a comment from the financially savvy ones I see in the other comments on what I’ve done to date. After exploring some different options I decided to open a custodial account for my son (age 2) that just holds a basic asset allocation with ETFs I will rebalance from time to time. My hope is that 16 years or so from now there will be enough in there for his discretion on either college or, if that’s not the route he takes, a first home. Are the tax benefits of the 529… Read more »

@pfinMario
@pfinMario
7 years ago

This is such a tough question and I have to start by saying I’m ages away from kids and probably marriage, but even then it’s something I think about.

I managed to go to a great, inexpensive public school for undergrad. And would like to think I’d be ecstatic to find my kids that lucky. But what about options? What if his or her dream is to go to an expensive private school? Or an expensive private school in another country (that is itself expensive)? Uf… I guess I’ve got time but uf…

Steven J Fromm
Steven J Fromm
7 years ago

This is very scary stuff. Your step by step plan is good one and it will be a recipe for success in funding for college. The problem is in our marketplace. Many recent college graduates cannot find a job and the one’s that can are taking jobs below their qualifications. Many of son and daughters friends are having a real problem here so something has got to give.

Tony@WeOnlyDoThisOnce
7 years ago

Great post, Holly. Would love to see more specifically on tax-advantaged college funds, if you have the time!

mike
mike
7 years ago

http://finance.yahoo.com/news/bad-job-market-college-grads-144100032.html

Great article, particluarly point 5 about the way the economy is changing and the demand for college grads could potentially be permanently damaged.

Kacie
Kacie
7 years ago

We also get the awesome Indiana tax credit. I hope it’s around forever! I would like to pay as much as possible toward my kids’ educations. My husband and I both graduated without student loans and it gave us an incredible head start . I don’t think our savings will affect aid, because we probably will earn too much for that. That’s fine. And we can use the money for trade schools, which is a great option. If my kids end up getting full ride scholarships, I would be happy to take a 10% penalty and give them money to… Read more »

Holly@ClubThrifty
7 years ago
Reply to  Kacie

You summed up my thoughts exactly. Our income and assets will probably be too high to get any help anyway, so I am not counting on any grants of any kind. And you’re right..if our kids get full rides we can still get to our money. We just have to pay taxes on the gains and take a 10 percent penalty. It wouldn’t be that big of a deal since we have gotten the 20 percent Indiana tax credit all along, I think. =)

Heather
Heather
7 years ago

Here’s a wrench to throw in the fan: what if your child(ren) decide NOT to attend college? EVER. And what IF there isn’t another kid for you transfer the funds to? My husband and I have decided we would like to help our kids somewhat, but we dont want them to have it all handed to them either. We are choosing to give them a set amount of money, put into a UTMA. And they can use it for whatever they want. Yes, they could become crackheads and spend it as they wish, but I think I’d rather take my… Read more »

Nick
Nick
7 years ago

Financial aid formulas are a moving target. I, for one, am not going to worry if my kids’ 529 balances disqualify them for need-based financial aid. Maybe this taking fair play to an unhealthy extreme, but if the mystical financial aid formulas don’t identify me as a person with “need” I kinda think it’s fair that they help out people who actually do. There are still many, many merit, athletic, and affiliation scholarships out there. I’m currently entering year nine of a plan to set aside 50% of a projected in-state tuition for my kids. The kids will have something… Read more »

jim
jim
7 years ago

Old guy here – put both kids thru college debt-free via 529’s we started while spouse and I were still paying off our undergrad/grad school loans. The scholarships they got helped – a lot – but we didn’t stop there. Even while they were in college we continued to contribute to 529’s for our grand babies – when they were but about a nano second birthed. That’s going to help them a lot ’cause the cost of college is insane. We don’t spoil them with crap toys. We save that $ for their 529’s. Honestly, sometimes it’s hard ’cause we’d… Read more »

Sarah L
Sarah L
7 years ago

We have been saving for our kids too (5 years and 7 months) and of course, the oldest has more, because we would take half of the money he was given for birthdays/christmas and put it into savings, as well as $10-20 a month from us but instead of the 529, we have just been doing a general fund because while we hope, and want him to go to college, we want him to make that choice, if he needs or wants the money for something else, he won’t be restricted, example: Missionary work, vehicle, down payment on a house,… Read more »

shares