Save Early For College

Even if your baby is still in diapers, it isn’t too early to start saving for his or her college education. But brace yourself.

It now costs an average of nearly $50,000 to send a child to a state university for four years, while a degree from a prestigious private Ivy League school will set parents back about $100,000.

Assuming that inflation runs at 4 percent a year, in 18 years tuition will be twice what it is today. But the cost of education is also increasing by more than 7 percent a year, according to the National Association for College Funding and Planning.

Therefore, many financial planners urge new parents to have at least $100,000 ready 18 years from now.

$100 a month plan
Fortunately, most parents do not end up paying for the entire cost of their child’s education. On average, federal grants pay for 15 percent of the bill, the state takes care of another 6 percent, and parents or students themselves pick up the remaining tab.

How do average parents accumulate their share?

Many financial planners suggest putting $100 a month into a low-risk growth mutual fund, striving for a return of 8 percent a year. You have plenty of time to ride out the one-in-three down years in the stock market.

After age 14, market risk becomes more important than inflation risk, so cut back on the stock percentage and open a money-market mutual fund.

When your child enters college, adjust the portfolio makeup again, to 50 percent cash and equal parts of stocks and high-yield corporate bonds.

Unique dorm option
A unique way to avoid the high cost of college dormitories is suggested by The Moneypaper, a financial monthly.

Find a house or condo within a few miles of campus with room enough for at least four tenants—one of whom will be your child. Do basic landscaping and repairs yourself, then furnish the property with inexpensive, durable furniture.

Charge reasonable rents and insist on formal leases. You can pay your child a management fee to collect rents and maintain the place.

Sell the property when your student finishes college, perhaps to another parent interested in a similar deal.

Controlling miscellaneous expenses
Your child is heading off to college for the first time, and you have devised a plan to pay the big bill of tuition and room and board. But once school is under way, miscellaneous expenses, ranging from pizza to shampoo, can put a strain on the budget and generate a call home for financial help.

To have a budget buffer, college counselors suggest that only 90 percent of available funds be budgeted.

Students also need to learn the difference between needs, wants, and wishes. For example, a textbook is a need; a new textbook may be a want; and a new textbook with a dictionary may be a wish.

As a student, and if you’re on a tight budget, consider these tips:
• Leave your car at home, if possible.
• Know where the bargains are—read the campus or local newspaper and keep an eye out for discount coupons. Ask other students about nearby discount or dollar stores.
• Shop around for the telephone company offering the best long-distance rates, and make calls at non-peak hours to save more. Consider the purchase of prepaid phone cards. Or write home for just the cost of a stamp.
• For entertainment, find out what the college offers for free or for only a small amount, such as movies, plays, or concerts. Find things to do with friends, such as playing basketball, racquetball, or lifting weights.
• Cut down on eating out. Stock up on peanut butter and crackers, and instant noodles.

COLLEGE FINANCIAL HELP ONLINE

There are a number of Internet sites to visit for information on obtaining financial aid.

Consider www.finaid.com and www.fastaid.com for financial help, www.moneypaper.com for investing tips, and www.savingforcollege.com for comparisons of investment returns and other features of the various state 529 tuition-savings plans.
—Research by Barbara Betts