4 lousy reasons not to save for college

http://www.savingforcollege.com/articles/20100709-4-lousy-reasons-people-dont-save-for-college

When you're already strapped for cash, it's a challenge to think beyond paying your monthly bills. The idea of taking even more out of your paycheck each month for a 529 college savings plan may seem impossible.

"People have a hard enough time coming up with the cash to put into your 401(k)," says Joe Hurley, a certified public accountant and founder of Savingforcollege.com. "There's always a way to squeeze out $25 a month to get the (529 plan) account going so you can start to see it grow and be a constant reminder that you ought to be saving for college."

Hurley and other experts poke holes through four common excuses why people don't save in a 529 plan and offer some ways to make saving for college easier.

You need the money for other spending priorities

The credit crisis may have caused your credit card company to lower limits or increase your interest rates, which affects your ability to spend, says Deborah Fox, founder of San Diego-based Fox College Funding. At the same time, you might be trying to pay down existing debt and create an emergency fund, which means saving in a 529 plan isn't a priority.

"Already there was a big question, 'Do we save for college?' Now it's an even bigger question: 'How do we position our family financially to weather at least the next few years?'" Fox says.

As you consider these questions, you should look for ways to free up money to save for college. A bundle package for your phone, cable or Internet could shave $100 to $200 off your bill each year, Fox says. Or, take a look at your home and car insurance and see if you are eligible for discounts.

"The additional cash flow might be redirected to their college savings plans," she says.

There is a misconception that 529 college savings plans have lost money when the investments are similar to people's retirement savings, Hurley says.

"Depending on which (529) investments you choose, you can either take risks or not," he says.

Projected tuition increases are too overwhelming

The skyrocketing tuition figures and online calculators can be depressing. "The biggest fear that I see is the increase in tuitions," says Fred Amrein, a financial planner with Wynnewood, Pa.-based Amrein Financial.

He suggests looking at your long-term goals and making sacrifices, like buying a $300,000 home rather than a $500,000 home and putting that cash cushion into a 529 plan for college savings.

And don't give in to the idea that you shouldn't save money because you are going to take out loans anyway. Hurley says some people rely on relatives to come through with funding, and that option may deserve a discussion in your family.

529 plans are too complex

The process of learning about 529 plans and their various investment options paralyzes some families.

"There are a lot of people who have heard of 529 plans, but they really don't understand (them)," Fox says. "There is confusion about how to choose a plan. Whenever people don't really understand something, they tend to put it on the back burner."

It's your responsibility to ask questions of financial planners, says Amrein. Don't be scared to ask them how they are compensated for steering people to certain 529 plans. And you will want to ask anyone who is putting you into a 529 plan why they are advocating that plan and how it will benefit you, he says.

529 plan savings will keep your child from getting financial aid

Right now, 529 plans do count when college financial aid is figured, but only to a small degree, Hurley says. Up to 5.6 percent of their value is included in calculating the expected family contribution when using the Free Application for Federal Student Aid, or FAFSA.

"Generally speaking, it's treated better than other types of assets that they may have," Hurley says. "Also, most families are denied financial aid because of their income more so than because of their assets."

People should start now to save for college in a 529 plan so their children will have more options in the future, says Kathy Kristof, a syndicated personal finance columnist and author of "Investing 101."

Kristof adds that whatever you can save in a 529 plan will add to the scholarships and student loans that contribute to paying for college. "If you have a phenomenal student who would be best served by an expensive private college, by having saved, you have preserved for yourself that option," she says.

Posted July 9, 2010