Strategies for the Ages
Sticker-shock survival: the right moves for families to make
Do it now. Nevertheless, at almost every stage of a child's life, there are actions parents can take that will at least prepare them for the pain of paying for college. And there are a few strategies that parents and students should adopt now, no matter how old a child is or how much a parent has saved.
Take budgeting, for example. It's never too early to try one of the financial aid calculators (such as those at Finaid.org or Collegeboard.org ) that will estimate eligibility for need-based aid and the parents' "expected family contribution" to their child's annual college costs. Don't forget to multiply the EFC by at least four, since the goal is to fund a degree, not just freshman year. A student planning to attend a public university should probably multiply the EFC by at least five, since only 40 percent of those students manage to get a degree within four years.
While the expected family contribution may seem daunting, it can be tackled more easily if divided in thirds. As the sample budget on Page 46 shows, many families of newborns could accumulate one third of the net cost of a public-college education by putting aside $25 a week or so. Paying another third of the expenses while the student is in school is often easier than parents anticipate, says John Trusela, a financial adviser in San Antonio. "A teenage boy can easily drink a gallon of milk a day. That's $3 a day," or nearly $100 a month, that is freed up when a kid leaves for college. Add in reduced transportation and insurance bills, and the typical family should be able to generate a few hundred dollars a month without much sacrifice, says Trusela. While borrowing the remaining third can leave students with an uncomfortably high debt load, the monthly repayment cost is roughly equivalent to that of a new-car loan.
Saving for college is getting trickier, but some tricks can work to parents' advantage. Before anything else, families should get their other finances in order by paying off high-interest credit card debt and maximizing an employer match for a 401(k). Then they can open a low-cost 529 tax-deferred college savings account, offered by mutual fund companies such as Vanguard and TIAA-CREF. They can ask friends and relatives to register their credit cards with BabyMint and Upromise. These free services rebate a small percentage of the charges to the 529.
Finally, more parents are learning to win the new financial aid game by focusing on a college's needs rather than their own. That's how Mike Horton, a part-time farmer and full-time crop insurance agent who had nothing saved ahead of time, slashed his college bills by about two thirds. Horton's two daughters were good students and collected college credits in high school. But Pepperdine and George Washington universities also gave them big scholarships because they seek geographical diversity. They like to spice up their mix with students from small midwestern places like the Hortons' hometown of Johnson, Kan., which is 80 miles from the nearest Wal-Mart. "You just have to have a product to sell," Horton says.
advertisement
