Is it Too Late to Save for College?

Is it Too Late to Save for College?

by Susan Neuhalfen

My son’s 7th grade pre-algebra teacher, Mrs. Drake, is my new hero. For his homework, the kids had to research the cost of college, a four-year degree, room and board, materials (because books probably won’t be used in a few more years), etc. Then came the best part–how would they finance it?

The students had to figure the total amount with a loan and with credit cards (various percentage rates and numbers of payments) so they can see how much extra they are paying. This was a real eye opener for my son who is hoping to go to medical school.

He first investigated Baylor University. He figured out that he would have to save $10,000 per year for the next six years to pay for his freshman year at Baylor. That’s just the first year. I told him that was a lot of lawns he was going to have to mow. I didn’t have the heart to tell him that that was THIS year’s tuition and that over the next six years it would continue to go up and up and up.

So, is it too late to save for college now? Bill Collins, CFP (Certified Financial Planner) with Edward Jones in Flower Mound says it’s never too late.

“In my experience there is no specific starting point,” said Collins who has over 13 years experience as a financial advisor. “I’ve had people come to me a year before college starts with nothing saved and another with a three day old baby ready to set up her future education account. There is no set formula.”

Saving vs. Borrowing
However when you do the math, it is less expensive to try to save for education now than to borrow the full amount later. For example, saving $200 per month for 10 years with a 7% return will yield roughly $35,000. Whereas to borrow $35,000 at a 7% interest rate over a 10-year period will cost double –over $420 per month.

Don’t Borrow From Retirement
Collins went on to say that to give a child the gift of an education is wonderful as long as the parents don’t sacrifice what they will need for retirement. It’s important to maintain a certain standard of living in retirement and it’s going to be a lot less if you’re taking from that account.

“You need to fully understand that by taking money from your accounts today for college, it may cost you your retirement,” said Collins. “You can always borrow and pay back money for education. You can’t borrow to fund your retirement.”

Weigh your options and don’t put your eggs in one basket
There are many options to saving for college and, as Collins points out, different options suit different situations. Having your money in different programs is the best way to save.

Collins recommends researching plans along with a financial advisor in order to make the best choices. There are many plans available including the 529 plans specific to saving for higher education. Sometimes Municipal Bonds are a good option as well. It is also important to note that every plan has its pros and cons. The younger your child is when you start investing, the more room for growth savings you have such as stocks. When your child is older, it’s more about preserving what you have since there isn’t a lot of time to grow your portfolio.

Ways to Save
A few savings “tricks” to think about include:
As your family income increases, allocate more to education savings plans.
Redirect the money spent on daycare to the education savings plans once the children enter elementary school.
Consider asking family and friends to contribute to the child’s education fund for birthdays and holidays instead of giving them money for gifts or other presents
Use tax refunds or bonuses as contributions
Once your car is paid off, invest that monthly car payment in education

Don’t Count Out Financial Aid
Just because you’re saving, especially with a 529, doesn’t mean that you won’t qualify for financial aid. The good news is that saving in a 529 and some other plans, the funds are not considered part of the student’s assets so it won’t count against them when they apply.

Another aspect of financial aid comes in the form of scholarships. While your student may or may not be able to qualify for an academic scholarship, there are many other possibilities that should be investigated. There are literally thousands upon thousands of scholarships, many of which you didn’t know existed.

Nearly every college and university has countless applications for scholarships right online and then there are many more independent scholarships given by businesses and charities for which students may apply. There are scholarships for sports such as skeet shooting and fishing in some places. There are scholarships from businesses for creative ideas or community service projects. There are even unique scholarships for tall people as well as twins and triplets. Look it up and see what you find. It’s just a matter of doing your homework.

The most important thing you can do right now, according to Collins, is start
working your plan.

“Don’t put it off. It doesn’t cost anything to have a meeting with a financial planner and see what’s possible,” said Collins. “Having your eyes wide open is the best first step when making a decision that works best for you and your family.”

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