College savings is a big question for many parents, and rightfully so. After all, it is a daunting task. Today, the cost for one year of college and expenses at a public university is a whopping $19,000. Nationwide, college tuition increases an average of 7% per year. Everyone can get student loans. Perhaps my kids will get a scholarship. And what if my children decide not to go to college?
When I graduated high school, my parents had no college savings. Although my grades were good, I had no plan. Because of this, I started college without any scholarships. My parents made too much money for grants yet too little to pay for my school. My first tuition payments were made with student loans.
Generally parents fall into one of three categories in saving for college:
- They save for college. These parents have made the decision that their children will go to college. Having the money set aside removes the biggest obstacle and objection to going to college.
- They want to save for college but cannot. College savings plans are too far down on the budget right now. These parents hope that someday they can begin to save. Or, they hope to pay for part or all of college when their children reach that age.
- They will not save for college. Since college is not a requirement, their children will pay their own way. Perhaps these parents paid for their own college. Or , they believe that their children will get loans, grants, or scholarships.
If you are saving for college, that’s great. Just be sure that you are saving enough. I have a neat little spreadsheet that you can use to help you calculate your college savings needs. Should you find that your savings are lacking, take a look at my post “Ten Tips To Add $650 Per Month To Your Budget.” Use a 529 plan or an Educational Saving Account (ESA) to save in a tax-free plan.
Also make sure that you’ve placed the right priority on college savings. The best approach is to first save for retirement each month, then save for college. Nobody will be funding your retirement so you must take care of that first. If you aren’t planning to pay the entire college bill, make sure your children understand that.
If you believe that your children can get student loans, you are right. According to USAToday, over $100 billion was loaned to students in 2011. Outstanding student loan debt now exceeds $1 trillion and exceeds the total outstanding credit card debt. Student loan default rates are on the rise. Many graduates find that they cannot earn enough to live and repay their loans.
A better option than loans is for your children to work their way through school. Of the $19,000 mentioned earlier, approximately half of that goes to living expenses. If your child lives at home, then they can work to pay for their tuition, fees, and books.
You might be ready to save but the college savings plans mentioned above may not be appealing. In this case, you could save outside of these plans. This will cause you to lose the tax advantage, but you can spend the money in whatever manner you choose.
Scholarships are plentiful, but they aren’t automatically awarded. An intentional scholarship search can be the best defense against the lack of college savings. Take a look at my two-part series on scholarship secrets every parent should know.
There are no right or wrong answers on this. For transparency’s sake, we do not have college savings set aside for our kids. My wife and I believe that our kids will work harder and value their education more if they pay for it. We do support them in other ways but paying for college belongs exclusively to them.
Whatever your approach, be sure that you discuss this early and often with your children.
Application Question – What is your position on saving for college? Do your children know this position?
Like this and want more? To be notified of new content or be the first to hear news about Affluent Student, go ahead and Subscribe Via Email using the widget above.
If you like what you read at Affluent Student, please like or share with your friends using the buttons below. Share your comments on this post and join the discussion below.