How will I ever pay for my children's college education?
With college education costs rising at faster than the general rate of inflation, a parent’s first worry when a child is born — after counting fingers and toes — may well be paying for college. Don't let it overwhelm you; make a plan.
With a four-year college education at schools like Princeton expected to reach $300,000 for children born today, saving up to send multiple children to college is frightening.
Saving for college is possible; here’s how
Decide what your responsibility is
Before you can start a savings program, you need to decide what your responsibility will be. Will you pay for your children to attend any school they want, at any cost, regardless of their grades? Will college be entirely their responsibility (if so, you can quit reading now)? If you’re like most parents, you’ll find somewhere on that scale that represents your approach to paying for college. My parents told me they’d pay tuition at the local college and let me live at home. Going anywhere else, they’d kick in that much tuition. I went to the state school and lived at home — then got an Ivy League MBA.
Presuming that you plan to help your children pay for college (you are still reading), the key step is to begin saving as soon as possible. The earlier you save and the more you save early the more the money will do the work.
Open a 529 Plan
A 529 Plan is a tax-deferred savings plan for education expenses. If you don’t have one and you have kids, open one today. If one of your kids doesn't use the money contributed for him or her, you can change the beneficiary to one of your other children. If you plan to have kids but don’t have them yet, consider it. It’s almost never too early to start saving.
Get your students involved
From the earliest days, help your children to understand your commitment to their education and what you expect from them. Encourage them to save their own money for college. Besides the money they can contribute, this will help firm up their commitment to go to college.
Help your students apply for scholarships
There are all sorts of scholarships, many of which are neither need-dependent nor merit-based. Using the internet and coaching from financial aid offices, apply for at least a dozen scholarships. Even if you get only a few, the effort will be well worth it. For instance, my wife and I are funding a scholarship for students who attended the inner-city grade school where my wife taught school for 10 years.
The U.S. Government provides tax credits for people who are paying for college. If you’re paying, you get the credits. Be sure you understand how to claim the American Opportunity Credit and the Hope Credit, which can help to cover thousands of dollars of educational expenses each year.
Use student loans sparingly
Student loans cannot be discharged in bankruptcy. They will hang over you or your student for years to come. It is hard for an 18-year-old to see how painful that will be. Help your students avoid student debt when possible.
Princeton and Harvard — and perhaps other schools — charge students from low-income households absolutely nothing to attend. Students there are admitted on a needs-blind basis; those from homes with low income pay nothing to attend. Even the living expenses are covered. Approximately 60 percent of the students at those schools reportedly receive needs-based aid. For families with incomes above the minimum threshold, the family’s financial responsibility is tiered so as to be affordable.
By following these basic steps, you can build and execute a plan that will assure that your children get a college education without breaking you beforehand or burdening them with a life of student loan payments.
Devin Thorpe, husband, father, author of Your Mark On The World and a popular guest speaker, is a Forbes Contributor. Building on a twenty-five year career in finance and entrepreneurship that included $500 million in completed transactions, he now champions social good full time, seeking to help others succeed in their efforts to make the world a better place.