Question for the Boston Money Coach:
What should I be doing now to prepare for my children’s college expenses?
I have two young children and am worried about the rising costs of higher education and student loan debts. I’ve read about college-savings plans but don’t know where to start.
Response from Boston Money Coach – Steve Stanganelli:
You should talk with a financial planner who can outline your options. There is more to paying for college than just saving for college. The reality is that when it comes to college there are two sets of prices: the ones paid by those who are informed and the other (higher) price paid by everyone else.
First, let’s do a reality check. You need to come to terms that you will likely not be paying the full boat here nor should you. You are not a bad parent if your child has to take out loans and have skin in the game.
Recognize that you may not likely cover the whole cost of college yourself. In fact, the share of costs covered by parents has dropped in recent years. According to Fidelity & Investment News (8/29/11), parents were paying 16% of the tab in 2011, down from 24% in 2007. Part of that can be attributed to the increasing cost of college – college inflation averages north of 5% year -over-year. And certainly part of that can be attributed to the fact that family resources are stretched as a result of the Great Recession’s job losses, declines in home equity and investment values.
And recognize that you don’t have to pay sticker price for college. Only a small proportion of students actually pay the published rate for college. And believe it or not, it may actually turn out to be cheaper to go to a private school that has a higher price tag than an in-state public school. This is because private schools tend to cover more of a student’s need than state schools which have more limited resources.
Regardless of how old your kids are, there are numerous strategies to lower the cost of college. While 529 Plans are an option for accumulating savings, they are not your only option. You need to consider Coverdells as well. You can also find financial advisors and institutions that offer the SAGE tuition rewards program for earning points that can be used to discount the college costs at more than 295 private schools.
In my next post, I’ll outline some specific strategies for you to consider.