Tag Archives: college savings

How Will Your Children Pay For College?

Little LRC walking to preschool last winter

Little LRC walking to preschool last winter


Paying for a child to go to college or at least helping to pay a substantial portion of the tuition is the goal of many parents. While I’ve mentioned that some of my co-workers seem to go to far in financially supporting their adult children rather than teaching them to be independent and financially literate, I understand wanting to help pay for college. They want to give their kids the best chance for a financially successful future and don’t want them to start out life with the burden of substantial student loan debt.

A recent survey has revealed that millennials are saving more for their children’s college education than parents from previous generations. The results of the survey makes sense because millennials are the generation that has had to bear the brunt of the student loan debt crisis. They have first hand knowledge of the burden of having student loans weighing them down and don’t want their kids to have to carry that burden.

Should you pay for college?

If you’ve got nothing saved for retirement or you’re living paycheck to paycheck, it’s probably best to focus on fixing that before saving for college. While your child can always borrow to pay for college costs, you won’t be able to borrow money to fund your retirement. There are also parents who don’t think it’s a good idea to pay for college because the child will have a sense of entitlement or take their schooling for granted. I think that paying for college is a shared responsibility. I have two little boys, a 3 year old and a 3 month old. I will do my best to help them pay for college but I’ll expect them to chip in as well.

How much should you save?

With private universities charging over $50,000 and even over $60,000 in tuition, it seems impossible to save enough to pay for college. And at the rate that tuition is increasing, it seems even more impossible. However, personally, I think the rate at which tuition is increasing is unsustainable. When college grads with heavy student debt burdens have difficulty finding high paying jobs and have a difficult time making their student loan payments, the college tuition bubble is bound to burst. In any event, both my wife and I went to state universities, and while tuition is increasing at public schools as well, they are still much more affordable. Many parents and students love the big name colleges because they think that is the only way to be successful, but often times, where you go to school will not determine what you will achieve. If my child turns out to be high-achieving and we can afford the price tag, I won’t deny him that opportunity, but going to a big name university no matter the cost just doesn’t make financial sense.

529 NYS saves

How do you save for college?

The 529 plan is probably the best vehicle to save for you child’s college education. Surprisingly, many people haven’t heard of the 529 plan. Only about two-thirds of Americans have heard of the 529 plan and only about 27% of families use it to save for college. Many people also have misconceptions as to how the 529 plan works. When you contribute money to a 529 plan, the money grows tax-deferred and when you withdraw the money to pay for qualified college expenses, you are exempt from federal taxes. Many states offer a tax deduction for contributions into your state’s plan. I live in New York and participate in its 529 plan because of the tax deduction and because it contains low-cost Vanguard funds.

Some have said they don’t want to save in a 529 plan because their child may not go to college. The 529 plan can be transferred to another child or to a grandchild or even to yourself. So there is some flexibility. However, if you really don’t like being tied down, you can always save in a taxable stock account.

Saving tips

Start early – I start saving for my first son’s college when I found out that my wife was pregnant. What can I say? I’m a planner. Since I didn’t have his social security number, I listed the beneficiary of the plan as me and then changed it to my son after he was born. Getting a head start opening a 529 plan will give allow your contributions to compound. Determining how aggressive you want to invest college savings will depend on your risk tolerance. If you are having trouble saving for your child’s college because you’re still paying off your own student loans, check out this valuable resource about student loan refinancing.

Have family friends contribute – When my friend’s daughter turned one, he threw a birthday party and asked for contributions to his daughter’s college savings plan instead of toys. His daughter has been showered with plenty of toys from family and friends already and they have a small apartment. A gift towards her future college education would be much more valuable. The 529 plan in New York makes it pretty easy for people to contribute online.

Have kids contribute – As I mentioned early, I think it’s important that children share in the responsibility in saving for their college education. When I was growing up, I would receive cash gifts during my birthday and holidays and would also receive an allowance. My parents would ask me occasionally if I’d like to save and invest that money for college. (The 529 plan did not exist at the time). As a good little saver even as a child, I would allot some of my savings for this purpose.

Do you plan on helping your child pay for college? How are you saving for it?