Saving for College
Help! We’ve been saving for college, but my child is two years from college, and we haven’t saved much. What should we do?
Your late start means you’ve missed most of the best opportunities to grow the money you have. With only two years until your child starts college, you’ll need to refine the college selection process, accumulate enough down payment for the early college bills, and establish a savings plan for the later college years. Here are some constructive steps you can take.
1. Investigate Schools
First, help your child investigate schools that provide good value. Some less expensive state universities and second-tier private colleges may offer better programs than their more costly private counterparts. Think creatively. Your child could attend a nearby school and live at home for a year or two to save money on room and board. He or she could attend a community college for two years and then transfer to a private four-year college. Or, your child could consider cooperative education, where semesters of academic work alternate with semesters of paid work. If your finances are severely limited, your child might consider taking a year off to continue saving for college before starting college.
2. Learn about financial aid
Second, learn all you can about financial aid. Do a dry run through the federal government’s financial aid application to determine whether your child will likely qualify for financial aid, and, if so, for how much. When you’ve zeroed in on a few colleges, examine their financial aid statistics. For example, what percentage of students receive financial aid? What percentage of the average package consists of loans? What percentage of a student’s financial need is generally met — 100%? 75%? Does the college offer merit scholarships? Use a net price calculator on a college’s website to understand how much grant or scholarship aid your child might receive at a particular college based on your financial information.
3. Investigate potential scholarships
Third, start investigating potential scholarships. There are several websites where your child can type in his or her interests, abilities, and goals to obtain a list of relevant scholarships. However, outside scholarships generally make up only a small portion of a student’s overall aid package, and the process can be very competitive. So don’t think that a private scholarship will magically cover most of your child’s college expenses. This search must be made in addition to, not in place of, the quest for federal and college-sponsored financial aid.
4. Other ways of saving for college
Fourth, examine any current financial resources that you can draw on for the early college bills. Do you have savings accounts, stocks, mutual funds, or cash value life insurance? Can you pay a portion of the tuition bills from your current income? Can you increase the family income by getting a second job or having a previously stay-at-home spouse return to the workforce? If you’re still short, you’ll need to investigate a personal loan, home equity loan, or federal Parent PLUS Loan. In other cases, you may need to tap your retirement accounts, though this is generally recommended only as a last resort when saving for college.
5. Earmark current income
Finally, you’ll need to start earmarking as much of your current income as you can for college bills that will come due in four or five years, when your child is a junior or senior in college. You should avoid high-risk investments because you’ll need the money relatively soon. Instead, choose a lower-risk investment, such as a certificate of deposit timed to mature when needed, or a money market mutual fund.
