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COLLEGE SAVINGS 101

Tutorial - Your goal: affording the college of choice

[Excerpted from Savingforcollege.com's Family Guide to College Savings]

Most people look at the price of a college degree as an expense, like the electric or cable bill. But what if you looked at it as an investment? According to the Bureau of Labor Statistics, persons 25 or older who held a bachelor's degree had median weekly earnings 60% higher than those with a high school diploma alone. Not only did those with a degree earn more, but the unemployment rate among those holding a bachelor's degree was half that of those with only a high school diploma. Still, the question remains: How will you finance that investment?

Pay as You Go
Your child could help pay for college by getting a job, but students must already juggle studies and other college activities. Even a part-time job might distract them from their primary focus – getting an education. You can also plan to pay college expenses out of your future income as long as you realize that doing so might require substantial cutbacks in other areas of your family budget. You also want to use caution here, as the cost of college has been rising at a rate exceeding wage growth for decades.

Pay Later
Some might suggest that you approach college tuition as you would buying a home – borrow the money to pay for college and simply repay the debt with higher earnings after graduation. Though many parents see advantages in having children contribute to their education expenses, a college education can be as costly as buying a home. Borrowing can leave a tremendous burden on a recent college grad just as they are getting started in their career. It is also far less expensive to pay for college with savings than it is to pay with debt.

Find Someone to Help Pay
Scholarships and grants are the ideal financial aid. They don't have to be paid back. But according to the College Board, less than $45 billion of the $122 billion in undergraduate federal financial aid for the 2014–15 school year came in the form of grants, while over $62 billion was loans. (The rest was federal work-study and the value of education tax benefits.) The states, employers, private organizations, and colleges themselves provided an additional $61 billion in scholarships and grants in 2014-15.

Also keep in mind that the total amount of federal aid has declined annually each year since the 2010-11 school year. With less money available, students would be prudent to look elsewhere for funding.

You also want to consider the contributions of family and friends. According to a 2014 survey released by Fidelity, 72 percent of grandparents felt that it is important to help pay for their grandchildren's college education. Consider the value of a gift made in lieu of traditional presents for your child's birthday party or special event. Some 529 savings plans offer free gifting tools to make it even easier for your friends and family to make a deposit for your beneficiary

Save Now for More Freedom and More Choice Later
Saving now is the best way to ensure that you have options later.

Saving affords you the comfort of knowing that you won't be dependent on outside sources like loans or scholarships to meet college expenses. It is also much less expensive in the long run to finance college with savings than it is to do so with loans. In fact, for a newborn it would cost you $195,891 more to borrow than to save for college.

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