Crammingforthecostofcollege

Cramming for the Cost of College

by John Ertz

When it comes to saving for their children’s college education, American parents score an "A" for intent. However, when it gets down to execution, most are failing. According to a series of studies on Americans’ money management behaviors conducted by Harris Interactive, 65 percent of Americans think it is important to save so their children can attend a good college, yet almost half of them have saved nothing for this purpose. The survey also found that eight out of 10 parents worry about having enough money for their children’s education.

It’s easy to see why parents want to help their children earn a higher education: a college degree pays. Based on the 2003-2004 academic year, the College Board’s Annual Survey reports that median annual income for bachelor’s degree recipients is 60 percent higher than for those with only a high school diploma; for those with a graduate degree, it’s double. Over a lifetime, the gap in earnings between those with a high school diploma and an undergraduate degree or greater exceeds $1 million.

Yet the price of that degree could jolt almost anyone’s budget. The 13 percent inflation-adjusted increase in public four-year tuition for the 2003-04 academic year was the highest in three decades. In just 10 years, the average cost for tuition and fees has risen 47 percent at public four-year colleges and universities and 42 percent at private colleges.

When on-campus housing, books, supplies, transportation and other personal costs are factored in, the average cost to attend a public four-year university or college for one year is $10,636, and $26,584 at a private institution. If the trend continues, most parents who plan to help fund their children’s education can’t afford to put off saving.

To help you determine how much money will be needed once your children reach college age, there are a number of on-line calculators such as those found at www.finaid.org, www.collegeboard.com or www.nmfn.com. Unless your children are elementary school age or younger, involve them in the process to determine:

If your child plans to attend a private or public college or university, community college or technical institute

If your child wants to live at home or on campus while attending school

How many years it should take to complete your child’s education

Planning for the future

Obviously, the earlier one begins saving for college, the better. Taking advantage of one or more of the education funding vehicles currently available is a great place to start. In addition to the possible benefits of compounding savings, these plans may also provide some tax advantages. A few of the popular plans used today include Section 529 plans, Coverdell Education Savings Accounts (formerly education IRAs), Custodial Accounts and life insurance. It’s a good idea to talk with a financial professional about which approach is most appropriate based on your specific circumstances.

No matter how late in the game you get started, if, after factoring in the amount you already have saved, you still fall short, various options may be available including:

Insurance. Some life insurance policies can be tapped for education funding, via loans and/or withdrawals. Withdrawals are sometimes taxable, and policies sometimes contain exclusions or limitations. Your insurance representative can help you determine how much cash is available and any implications involved. Life insurance is one of the few assets that will not be considered when determining your child’s eligibility for financial aid.

Grants and Scholarships. Your child need not be a budding Einstein in order to qualify for some of the scholarships that exist. Grants based on such factors as your income, place of employment, or even a relative’s military service are available to qualifying individuals. Information can be obtained through high school and college counselors, your local library and the Internet.

Student Loans. The Federal Student Aid Information Center provides a variety of free publications that are available by calling 800-433-3243. Their Web site (www.studentaid.ed.gov) allows you to complete the Free Application for Federal Student Aid (FAFSA) online. It also provides tips on reducing college costs, finding non-federal scholarships and other helpful topics. The FAFSA is also available from a high school or college counselor or public library and is the starting point for most student loan applications.

Home Equity Loans. In some instances, the best option to help pay for college education can be leveraging the equity in your home. Banks offer a variety of programs, from flat loans at a fixed interest rate to lines of credit that can be accessed on an "as needed" basis.

Above all, don’t be afraid to ask for advice when planning for your child’s education regardless of how late you might be starting this process. Financially, emotionally and psychologically, it is probably one of the biggest investments you will ever make. And the impact on your child’s future will last a lifetime.