How Will We Ever Save for College?

10 Tips You Need to Know About Saving for College…
Whether Your Baby's Still in Utero or in High School

By Caroline Grannan

Check out the other articles in college finance series:
How Will We Ever Save for College? | "We Forgot to Save for College!" | Many Ways to Save | Choosing and Using a Financial Planner

The best time to start thinking about paying for college is when you're planning décor for the baby's room - and if you can only do one or the other, go for the minimalist look and put your money into the college fund.

That's the advice from financial experts, and from parents who've been there. But it's not advice that's easy to follow. Putting off saving for such an important, expensive part of a young person's life has created a real crisis for many families.

Parents of tomorrow's college students are paying off big mortgages and car loans, as well as health, home and car insurance. In many homes, both parents work and the family still lives paycheck to paycheck. Saving for college, when the projected cost is nearly the price of another house, seems downright overwhelming - if not impossible.

Most of us have heard some version of the frightening figures: By the time today's 5-year-olds go to college, four years of undergraduate tuition, room and board are projected to cost $98,561 at a public university and $235,095 at a private college, according to the College Board, an association serving colleges, universities, students and families. That's nearly double today's average costs.

How are you supposed to save such a huge sum, while also facing increasing costs of living and saving for retirement too? It will take some discipline, but you can do it. These 10 tips from financial experts and college advisors will help you better understand your options and meet the challenges of saving for college.

1. Start saving as early as you can - ideally when the pregnancy test turns up positive. Most parents start saving too late, underestimate what they need to save and overestimate what their kids will get in aid or scholarship money, according to a 2006 survey of college financial aid administrators and parents for AllianceBernstein Investments of New York. (See "Parents' Mistakes.")

"We're the example of how not to do it," laments Janice Sugerman, whose family faces a daunting debt load for her older son's college education. "We were really stupid. We had some savings, but not a college fund. We remodeled our house and had a couple of expensive bar mitzvahs." Sugerman's son, who graduated last year from Vassar College in Poughkeepsie, N.Y., shared the cost and now faces years of debt payments.

So take action now, financial advisors urge. If you start saving early on, compounded interest could make up as much as 25 percent of your college fund when the time comes to use it.

"Create a financial plan," advises tax attorney Shannon Nash, author of For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth. Figure out how much you can put away each month for college savings, consult with a financial planner about savings plans, and re-evaluate your monthly expenses to figure out where you can turn "discretionary" spending into college savings.

2. Don't take on "impossibly huge" savings goals. Instead, plan on saving one-third of the college cost beforehand, advises Robert Franek, chief college expert at The Princeton Review, the well-known college advisory service.

Author Mark Kantrowitz, creator of the widely acclaimed Web site, interprets the one-third rule this way: "You should expect to save one-third of the anticipated college costs, pay one-third from current income and financial aid during the college years, and borrow one-third using a combination of parent and student loans."

Financial advisers also suggest that kids contribute, saving large monetary gifts or a portion of their earnings from part-time jobs. When your child is in ninth or 10th grade, sit down for a talk about college and the financial picture, Nash suggests. Students need to understand what it takes to get them to college - and they should have a stake in it.

3. Seek financial aid, scholarships, grants or other assistance, but don't overestimate what you'll get. The good news is that more than half of all students receive some kind of financial aid, according to the College Board. It's a myth that only low-income families are eligible, says Franek.

Families with a household income of $75,000 or more can still qualify for significant aid, particularly when an expensive school is involved, or two or more siblings are in college at the same time, according to Kiplinger's Financing College guide.

Scholarships and grants are the ideal aid - free money with no repayment obligations. But most parents mistakenly assume their kid will get enough scholarship money to cover a quarter of the expenses. The AllianceBernstein survey found that 72 percent believe their kids have a "special talent" that will result in a scholarship. Parents also report they've pushed their children to achieve academic excellence (72 percent), athletic prowess (47 percent), or musical or artistic talent (38 percent) in the quest for future scholarship money.

All aid and scholarship options should be researched and pursued if appropriate, the experts say, but parents should not assume that this aid will be easily available.

4. Check out "529" government college savings plans carefully. These popular tax-advantaged savings plans may - or may not - be right for your family. The 529s vary by state, with some options offering prepaid college tuition - tomorrow's education at today's rates - and tax breaks, too. Some employers offer tax-free withholding from salary for 529 plans, which can start with as little as $25 per paycheck, Franek says.

They all boil down to terrific income tax breaks. So what's the downside? If your child drops out of college or, for that matter, never starts, the money could still be used to pay for college for another family member. If it isn't, however, "the IRS kicks you in the butt with the penalties," quips tax attorney Nash. "If it were me, I'd use that plan for myself before I'd let that happen. Me or my husband - one of us could use some more education."

The 529 prepaid tuition programs especially need to be checked out to learn what happens if there's a change in college plans; the programs might apply only to public, in-state schools, for instance.

5. Keep college funds separate from other savings. "You need to create an asset that nobody can touch, and that Grandma and Grandpa can contribute to," Nash explains. With a separate account dedicated to college, you're less likely to go after that money for other needs.

What about tapping into other savings accounts for college expenses? Many advisors view retirement savings as sacrosanct, untouchable even for the life-changing objective of a child's college education. There are loans for college, they say, there are no loans for retirement.

Still, it is possible to be exempted from penalties for early withdrawals from 401(k)s and Roth IRAs by getting a "hardship distribution" for education. Be cautioned, however, that college is one of only a few exceptions that might merit tapping into a retirement account for, Nash says.

6. Make adding to the college fund as automatic as possible. Direct payroll deductions into a separate college savings account are the way to go, experts agree. Even if you can only save a little bit each pay period, something is better than nothing. And once saving becomes a habit, it's easier to increase the amount put aside as circumstances allow.

7. Don't fall for the myth that saving for college will reduce your financial aid options.

"Saving for college early on is always, always better," Franek reiterates. The amount of savings you have wouldn't impact eligibility for financial aid, experts say, until the point at which you are so wealthy that you shouldn't be applying for aid anyway.

8. Realize that the highest-priced colleges may not be best suited for your child (or worth the money). Harvard and Princeton may look impressive on a window decal, but these universities cost up to 10 times what a state college does. The price tag and prestige isn't always worth it for some students.

The Sugerman family, who went into debt paying tuition at Vassar, believed their son had earned the right to choose the college of his dreams after working hard in high school.


Parents' Mistakes

Most parents plan to pay for some, if not all, of their children's college costs, according to a 2006 national survey of 200 college financial aid administrators and 1,358 parents for AllianceBernstein Investments. But that same poll had eye-opening findings about parents' actions and assumptions:

  • We start saving too late: 89 percent of financial aid administrators surveyed said this is why families don't have enough money for college.

  • We don't save enough: 58 percent of parents put more money into eating out or ordering in; 49 percent put more into vacations; and 38 percent put more money into consumer electronics in the past year than into a college savings plan.

  • We believe colleges will help adequately cover costs: 97 percent of the financial aid administrators say parents have "a false sense of security" about how much colleges can actually help. Among parents, 68 percent believe a college will create an aid package they can afford.

  • We're counting on scholarship or grant money. Specifically, 87 percent of parents are depending on scholarship or grant money, and most believe their child will get enough to cover a quarter of the college expense. Yet two-thirds of the financial aid administrators say scholarship and grant money is less available for today's average family than in the past.


  • Scholarships aside, we still believe our kids will graduate from college owing an average of $27,500 in debt. Debt is "just a part of life," according to 63 percent of the parents surveyed - belief that AllianceBernstein calls dangerous, since debt can seriously hinder a graduate and his family for years after college.

    More information on the survey, conducted by the national polling firm Mathew Greenwald & Associates, is available online at

    - Deirdre Wilson



    "He had an image beforehand in his mind of what he wanted college to be like, and he just fell in love with Vassar," says his mom, Janice. Was it worth it? Not really, she admits, noting that he was unhappy with the classes in his major - political science and history. "He turned quite sour on the school," she says. Indeed, after graduation, he switched focus and moved into culinary work as a sommelier.

    Sugerman's younger son is now a high school senior, and prestigious Ivy League schools are not on his list. With interests in geography and urban planning, his sights are set on a state university with strong programs in his field of interest. The cost: $3,172 in-state tuition, compared with Vassar's $36,030.

    9. Do your homework when it comes to researching scholarships. There are many scholarships available, and the criteria for snagging one are all over the map - academic excellence, athletic prowess, financial need, civic service. Juniata College in Huntingdon, Penn., even offers up to $1,500 to one or more left-handed students each year.

    Many relatively successful students can get some kind of scholarship money - and every little bit helps, even if it's not enough to pay the entire tuition bill.

    Some parents assume that pushing their kids into sports is the best way to get scholarship money. But overall, academic merit is a more likely magnet for scholarships, says independent college admissions advisor David Benjamin Gruenbaum.

    Regardless, don't be shy about applying for available scholarships. Gruenbaum describes one client's success at a University of California school: "There were four women's golf scholarships, and only four women applied."

    10. Help your child make good choices throughout the school years. A desirable college applicant is in a better position for many reasons, aid and scholarship money among them.

    • Consider innovative learning experiences, such as language-immersion schools or language courses that kids can take as early as kindergarten. Fluency in a second language is impressive to college admission officers.

    • Support children's extracurricular activities. But realize that "it's a myth that the ideal applicant is well-rounded," notes Gruenbaum's wife, Heather Chagnon, another veteran independent college admissions advisor. "Colleges want to see kids who excel at a few things, especially unique things."

    • Encourage a child to get involved in community service. College admissions officers look for this, Chagnon emphasizes. "Get kids into that mind-set. It's an activity that's worthwhile in and of itself. At a younger age, it's something the whole family can get involved in."

    • Think carefully about whether your child belongs in a public or private K-12 school. "Some really elite private schools will send a counselor across the country to make a case for one single applicant to Yale," says Chagnon. "But college admissions officers also look favorably on kids who go to public high schools with a tough reputation. I've heard of parents moving their kids into certain schools for that reason - the opposite of what you traditionally expect."

    Remember, too, that private school tuition can deplete college savings.

    In the end, what matters is what's best for your child. A child who is happy and comfortable with his elementary and high school experiences will probably be academically successful - and all the more appealing to a college or university.

    Check out the other articles in this series:

      href="">"Oh No, We Forgot to Save for College!"
      href="">The Many Ways to Save
      href="">Choosing and Using a Financial Planner


    The resources listed below cover long-range planning for college savings. This is just a small sampling of the resources available, but a good place to start.

    Financial Planners or Advisors

    Both membership organizations list local financial planners and good financial planning tips:

    College Financing Advice

      href="">   - Offers information to students and parents about saving for and applying to college.

    •   - This award-winning Web site has information on aid, scholarships, loans, savings plans and more.

    •   - Provides information, tips and news about college savings options, including 529s and Coverdell Education Savings Accounts.