How Will I Ever Pay for College?

When it comes to saving for college, it’s never too late to find solutions to cover the price of education, says Anna Colton, managing director with the Consumer Banking & Investments Northeast Division of Bank of America. Here’s how to do it in four (relatively) simple steps.

By Cheryl Lock


Find the hard number

While Americans are saving more now than ever before, according to the 2018 Merrill Edge report, that isn’t necessarily translating into planning: 54 percent of people admit they have no monetary goal in mind when it comes to sending their children to college. 

Before you begin to think about saving for college, you need to ascertain a hard number of what it will cost. Sit down with your child and consider all the school possibilities including dream schools, “fall backs,” in-state options and schools that require travel. Sean Pearson, an Ameriprise financial advisor in Conshohocken, PA, suggests coming up with the following three-part budget:

  • Personal savings
  • Income while the student is in school, plus any grants and discounts
  • Debts to cover

Once you determine this number, you can begin to formulate a saving timeline — How much you can afford to put away each month and what, if anything, your child will need to do to make it happen as well.

Remember that money spent on education is an investment and should be viewed as such: In “There is a price at which a stock or a home just doesn’t make sense, and education is the same thing,” says Pearson. “There is not much evidence that just because you went to a school that required a lot of student loan debt, you are better off in the long run.”

Instead, he suggests finding a school that statistically maximizes the salary for the field your child is going into for the least amount of debt. A good overall rule of thumb, says Pearson, is to stay at or below the student’s anticipated first year salary as a cap for any total loan amounts necessary to pay for school.

Scrutinize your budget

Like most financial goals, deciding how to pay for your child’s college should start with your budget, says Pearson: “If you have money to save after your essential bills are covered, you can prioritize where to save the rest,” he says.

If your budgeting reveals very little room for college contributions, you might want to consider ways to increase your income. For example, if there’s time, you might be able to get a side job or increase your training to get a new, higher-paying job.

Pearson recommends that parents cap borrowing for their child’s college education at or below one year of their own salary. “Another rule of thumb to help gauge whether you’re on track to pay for college is to multiply your child’s age by $3,000 for in-state public schools, $5,000 for out-of-state public school, and $7,000 for private schools,” says Pearson. For example, if you want to fund in-state tuition for your 10 and 8-year-old children, you should have $30,000 and $24,000 saved, respectively.

Set up your savings

Where you decide to put your savings will again likely depend on your timeline. The most popular way to save — using a 529 — often comes with tax deductions, depending on your state. This way, even if you don’t have much time for compound growth, saving some money on state taxes will still come in handy, says Pearson.

As far as other savings options go, they each have their positives and negatives: “Certificates [of Deposit] might make sense if you find a decent rate for two to three years,” he says. “Once you go past that, education inflation is likely to surpass what you will earn in a certificate, putting you further behind your goal than the day you actually made the contribution.” As far as using a Roth IRA and cash value life insurance to stock up for college funds, Pearson doesn’t recommend it. “There are potential tax implications to a Roth IRA that you should understand before making withdrawals, and Congress can always change the rule on withdrawals.”

Once you have your savings account open, consider creating a savings schedule that aligns with paydays, says Colton. Also, set up direct deposits, if possible, towards that specific fund.


Figure out how your kid can contribute

You’ve probably heard that there are more ways to pay for college education than there are to pay for your own retirement, so it’s important to always pay yourself first in that regard: “If your retirement savings are not on track and you are not in a position to be able to save for both [college and retirement], save for retirement,” says Pearson. “If you don’t, the gift of education to your child may become a loan if you run out of money in retirement and cannot afford living or healthcare expenses.”

If you don’t have a lot of time left before your child starts school, you don’t have a lot saved yet and you don’t want your kid to have to take out massive loans, you still have some options. For example, your kid could consider getting a part-time job while in school to help cover costs or could look into completing a work-study, says Colton. You might also want to consider putting some money into SAT/ACT test prep, depending on your child’s educational abilities: “Increasing your child’s competitiveness for grants and scholarships could do more to bring down the cost of education than saving, especially if you start late,” says Pearson. 

You can also look into local scholarship opportunities: “There are many smaller charities, local recreational sports leagues or VFW’s that have grants in the couple hundred or couple thousand-dollar range,” Pearson adds — and every little bit adds up.

Saving for college might seem daunting, but like most things, creating a plan can help alleviate the stress. With some solid numbers in mind and a strategy for saving, your kid can get the education he or she deserves without putting your own financial future in jeopardy in the process.


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