Make a realistic plan to pay for college
You don't need to jeopardize your retirement to educate your kids
For most parents, saving for college is daunting enough. Four years at a state-supported school costs an average of $56,000 or more these days, when all expenses are considered. A high-end private education can run more than $132,000. Factor in a slumping economy and the fact that college costs are rising at almost twice the rate of inflation, and many parents are simply throwing up their hands. A recent Fidelity Investments survey found that more than a third of them have stopped saving for college. As a result, they'll probably be able to afford only one-fifth of the cost when the time comes.
To avoid that bind, you need to make—or remake—your plan for affording education. Your strategy should consider how much you can realistically save and how your child can make up any shortfall with grants or loans. It should also take into account your own needs. "Parents who fail to plan often end up skipping out on their 401(k) contributions and even raiding their existing 401(k) and IRA to pay for school," says Ken Clark, author of "The Complete Idiot's Guide to Getting Out of Debt" (Alpha Books, 2009). But shortchanging your retirement to pay for college can backfire in the long run.
Start the process by figuring out what kind of school your child might attend and how much it will cost. The College Board, the outfit that runs the SAT tests, has a good set of tools at www.collegeboard.com. Then figure out how much you can save. The next two pages offer specific savings tips for parents with young children and those with older children. Then estimate how much of the cost might be covered by financial aid. A good way is to fill out the Free Application for Federal Student Aid, or FAFSA, the standard financial aid form used by the Department of Education (www.fafsa.ed.gov). If the result suggests your plan won't work, adjust variables such as your choice of school or your savings goal to find one that does.
And definitely don't throw up your hands. Despite the bleak economy, experts say most families will be able to manage college costs, either alone or with loans. And with a plan in place, at least you can see when you're off track, so that you can tweak your investment mix or savings if needed. "The fundamentals of the game remain unchanged," says Keith Newcomb, a financial planner in Nashville, Tenn. "A challenging economy merely highlights the importance of parents looking at their kids' college fund in the context of the family's overall financial landscape."
