There are some people who could pay for their kids’ college education with the spare change in their sofa and there are others who, no matter how much they would like to save for their children’s future, have budgets that are just too tight to allow for anything to be set aside.
My family, along with what I suspect is a large portion of the population, falls in the middle. We can set aside some money every month to help offset our kids’ future college expenses but this amount is not nearly enough to pay for four years at a public school let alone private school especially considering how fast college tuition is rising.
According to the College Board, tuition has increased an average of 5.9% per year for the past 30 years. This means if your child is in kindergarten today, when they are ready to go to college, four years of tuition, room and board at an average public school would cost $167,000 or $391,000 for an average private school.
I know even if the traditional college savings accounts my wife and I are invested in was earning a consistent 6% return the monthly amount we set aside wouldn’t be able to grow to $391,000 or even $167,000 in time. This made me and my wife frustrated.
There must be a better way to save for college? Then it hit us. We were asking the wrong question!
Original question: “What is the best way to save for college?”
The problem, we discovered, is the question “What is the best way to save for college?” is really part of a larger set of questions that would be difficult to answer correctly without considering all the other components.
Here is the full set of questions we came up with:
How can we improve the chance our child will be accepted to college especially the college of their choice?
SAT and/or ACT Test Scores
Looking just at two SAT or ACT scores, there is no way of knowing if one, both or neither student took a course on how to score higher on these test. This means there is no advantage to NOT taking a prep course and in fact only disadvantages as colleges and scholarships place great consideration on these test scores as part of their acceptance criteria.
This stands for Preliminary SAT and is usually given on a voluntary basis to students in their sophomore year of high school.
My high school presented it as a “practice SAT” so we would know how the real SAT would look when we took it as juniors. What I know now, is colleges seek out students who do well with their PSATs and more importantly, there are scholarships based on your PSAT score.
You should treat the PSAT with the same preparation and importance as the SAT.
We have our kids enrolled in a variety of outside activities throughout the year. These activities cost money, money that we could be diverting into their college savings accounts but we feel these activities help create a more dynamic, confident and well rounded individual. All traits that colleges like to see on their entrance applications.
Grade Point Average (GPA)
Because GPAs as well as test scores are headline numbers in admissions offices we diverted some of the money that was being deposited into our son’s college savings account and used that money to hire a tutor to help him with the subjects he struggles with. The result now is all of his grades are decent (good GPA) instead of some decent and some horrible (bad GPA).
How can I get someone else to pay for my child’s college education?
Scholarships come in just about every imaginable size but they all have two things in common:
The organization that is issuing the scholarship needs to be made aware of your child.
Your child needs to meet the scholarship’s qualifications.
If a college accepts your child, they will usually forward their information to organizations on campus (example the engineering department) that can provide scholarships to kids entering that department.
There is also a very long and varied list of organizations outside of the school that your child could apply for such as Rotary, Alumni groups, civic organizations that are looking to help offset someone’s tuition bill.
Applying for these scholarships usually doesn’t cost much more than the postage but it will take time and energy.
According to the College Board for the 2011/2012 school year, there was $236.7 billion in financial aid provided to undergraduate and graduate students. This money is not loan money and doesn’t need to be paid back but it did require parents and students to file appropriate paperwork on time.
What is the best way to save for college for the portion I will likely have to contribute?
Google this question and you will be offered descriptions of the most common college savings accounts (529s, Coverdell ESAs, gift to minors, etc.) along with a bombardment of adds from all the major mutual fund companies urging you to invest with them.
How else can I help my child graduate with the least amount of debt?
Besides loans students take on to pay for tuition, room and board, they also are likely to take on loans that have much higher interest rates and are aggressively marketed to students. These loans are called credit cards.
According to the report by Sallie Mae “National Usage Rates and Trends of Undergraduate Student Credit Cards”
84% had at least one card
50% had four or more cards
82% carried on-going balances and paid finance charges each month
40% purchased something knowing they didn’t currently have the money to pay for the purchase
Have your children take a course on how to manage their budgets and how to read the fine print of credit cards as a way to protect themselves from these modern day loan sharks.
I am a small business owner who believes most Wall Street produced financial writings fall into one of two buckets: propaganda or painfully dull.
I am attempting to offer an alternative by creating short posts I hope people can relate to and after reading will have a better understanding of finance.
I have been married to my beautiful wife for 14 years and we have two children, one of whom has autism.
When I am not working or spending time with my family I enjoy running half marathons, bike riding and competing in triathlons.