Saving for college in today’s economy is like the ancient Chinese saying that a journey of a thousand miles begins with the first step. It may seem like a daunting task, but you’ll never finish unless you start.
“As is always the case in finance, when you are trying to reach a goal ... look for multiple solutions,” said Reid Frederick, who is social responsibility coordinator for the nonprofit Whatcom Educational Credit Union. “I think a big part of finance is psychology. Doing nothing is a choice. You’ve got to be willing to develop a plan.”
Frederick, who was raised in Bothell, came to Bellingham to study at Western Washington University. At WECU, he teaches about financial literacy and directs the credit union’s local charitable donations. Helping members develop a plan to fund their children’s college education is among his responsibilities.
“Doing something is better than doing nothing,” said Frederick, who has a degree in international relations and economics with a minor in Spanish. He studied in Chile through a WWU program, and his language skills are helpful with outreach to WECU’s Spanish-speaking customers.
His advice for parents goes beyond tossing spare change in a jar and putting those coins into a savings account.
“There’s not one magic bullet,” Frederick said. “Look at what you can do today.”
With that in mind, here are 10 things that parents can do as part of an overall financial plan to pay for college:
1. Make a budget
Frederick said recent estimates indicate it will take $185,000 to send a child to an in-state, four-year public university in 2030, only 15 years away. For a private college, that figure hits an astounding $410,000.
He said college tuition has climbed 8.6 per cent annually in recent years, much faster than the rate of inflation.
“The way to look at it is to break it down to chunks that make sense,” such as the amount of money a family needs to save monthly, he said.
2. Patience is the key
Get started with something simple, like establishing an educational savings account.
“That’s basically after-tax money you put into the account; that money will grow tax-free,” Frederick said. You’ll pay taxes only after you begin using the money.
3. GET going
Frederick is a fan of Washington state’s Guaranteed Education Tuition program, a kind of savings account that keeps pace with rising college costs. He said parents shouldn’t be swayed by President Obama’s recent initiative to fund free community college for all Americans or discussions about ending certain tax credits. Money saved through GET won’t be lost, he said.
“Any political uncertainty is not an excuse not to save. (GET is) really a great program. You’re basically buying college costs today, but whatever you put in will grow.”
GET funds can be used anywhere, not just at Washington state schools. Better still, he said, is that the GET staff manages your money – a plus for parents with little investment savvy. Money saved through the program grows at a rate to match costs when the child enters college. Learn more about GET online at get.wa.gov.
4. Consider alternate routes
Keep costs low by going to a trade school such as Bellingham Technical College or getting an associate’s degree from a community college and then attending an in-state, public, four-year university.
“You can save a lot of money by doing that,” as opposed to a private school out of state, he said. He said parents should talk with their children about their career goals and what they hope to accomplish with their post-high school education. The traditional path isn’t always right for everyone.
5. Actively search for scholarships
“There really is significant money for those who are organized and determined,” he said. Start early and ask for help from the high school counseling office. Keep looking for scholarships even after your child has started college.
6. Help your child find a job
“Have your kid put some skin in the game,” he said, noting that many young adults will find the effort of helping to put themselves through college a gratifying and empowering experience.
7. Be wary of student loans
Student loans can help as part of an overall financial plan for college, but don’t overlook their potential for getting the borrower too deep in debt, Frederick said.
Student loan debt has surpassed credit card debt in the U.S.
“Don’t borrow more throughout your college career than you could realistically make in your first year on the job,” Frederick said.
8. Know the tax code
Take advantage of the American Opportunity tax credit, which is $2,500 (remember, don’t tap your educational savings plan until after paying the first $4,000 in qualified education expenses, such as tuition and textbooks).
9. Keep funds separate
Budget separately for your children’s education. Don’t sacrifice your retirement savings for your child’s college savings. “Robbing Peter to pay Paul is a bad idea,” Frederick said.
10. Help your child succeed
Stress the importance of good grades and study habits throughout their school career. Students who earn high marks show school officials and potential employers that they’re committed to their education.
“(Good grades help) you get a scholarship and you might get a better-paying job because you did well in college,” Frederick said. “If you get good grades, there’s quite a bit of savings to be found.”