Our current economy has made my how-to-pay-for-college conversations with parents a challenge. As an enrollment administrator for a selective liberal arts college, I'm used to talking with parents who are anxiety-ridden about whether their child will get into the "right" school. But the apprehension about getting into college is nothing compared with the worry—approaching despair—over how to pay for college.
Unfortunately, too many people—especially families with younger children—believe that saving for college requires a sacrifice they're unable to make. They're reading news stories that project the cost of a college education 10, 15, or 20 years from now—numbers that are so astronomical you might think they were a line item in NASA's budget. Some analysts are saying that to be able to cover the cost of college then, you need to start saving $500, $750, or even $1,000 a month per child now. Well, the families I talked with can't spare that—especially the family with triplets!
The not unexpected response is simply to give up. My response, however, is to remind parents that saving for college will always help, no matter how much they put away each month. In addition, parents have never had so many options for saving for college, especially because of the proliferation of 529 plans. The short- and long-term tax benefits of these plans make saving for college even more palatable.
Financial analysts who bring a message of gloom and doom about what you can expect to pay for college focus on the "whole nut"—the projected total cost of college at some distant point in time. They then calculate what you would have to save per month to cover that figure. They also assume no financial assistance in either need-based or merit-based aid.
Those of us in higher education encourage families to begin to save just one third of that monthly figure planners give you, then divide the balance between monthly payments to be made during the college years and long-term financing to be paid back after college.
Simple math. This plan seems so logical, so simple, so manageable, yet it's not percolating down to the general public. First, save one third of the future cost of college with monthly contributions to a college savings plan. (I recommend first the 529 savings plans.) Once your child is enrolled in college, continue your monthly payments, but instead of sending the check to your savings plan, send it to your child's college to cover the tuition. (At this point you'll also be using money from that savings plan to pay tuition). Finance the final third by taking advantage of low-interest, deferred-payment student—or parent—loans.
Does one third of $500, $750, or even $1,000 per month now seem manageable? Perhaps so. And for those for whom this is not possible, it is very likely that the cost of a college education will be discounted by some significant amount that makes even a $50, $75, or $100 monthly contribution to a savings account helpful.
Some final tips:
- Merit aid, while prevalent at many colleges, is something you might not want to count on. If your child is fortunate enough to receive such an award, use it to reduce either your monthly payments during college or what you finance over the long term.
- Start your monthly contributions to a college savings plan as soon as possible, and try to increase the amount you save each year. Having your child contribute some portion of cash gifts he or she receives will increase not only the balance of the account but also your son or daughter's sense of fiscal responsibility.
- Explore financial aid options by calling college admissions offices, register on FastWeb.com to identify outside scholarship opportunities, explore MeritAid.com for information about which colleges offer merit-based scholarship, and take advantage of websites like savingforcollege.com and U.S. News's "Paying for College."
- And, most important, don't give up. You ask your kids to tackle tough problems in school every day so that they'll have the opportunity to go to college. Beginning a college savings plan can be intimidating, but consider it an opportunity to show your children that challenges that seem insurmountable sometimes just require a little more homework.
Scott Friedhoff is vice president for enrollment and communications at Allegheny College , a private, liberal arts college in Meadville, Pa.