Can We Really Afford College?

Most families use a combination of savings, current earnings and financial aid to cover expenses. All families are eligible for some aid. Financial aid, however, is primarily need-based. Families should plan to save, contribute from earning and borrow to some extent to meet the costs for education after high school. Each student is expected to contribute from savings and summer earnings. When you start early, you can save smaller amounts over a longer period of time, which is easier on your budget. Any amount you save will add up over time and lessen the amount you and your child will have to borrow. Meet with a financial planner, accountant, banker or investment counselor to discuss your goals and investment strategies.

How Much Should We Save?

Setting a savings goal is critical to planning ahead for college expenses. A good savings plan helps to reduce future educational debt and increases your child's higher education options. Remember, it is never too early or too late to start to save. Below is a comparison to show that saving any amount per month will greatly improve your ability to pay for college expenses.
(*assumes 5% interest rate compounded monthly)

Check out the College Costs and College Savings Calculators

Making Your Decision
By Mapping Your Future, www.mappingyourfuture.org

Be sure to plan ahead and make wise decisions when you choose your savings options. Check with your financial advisor, accountant, banking institution, or credit union for more information. When looking at the various options, you want to consider a few things:

• The age of the student to attend college: The younger the student, the more aggressive you can be. As the student becomes older, you will begin reducing the risk. Within a few years of college, you may want to shelter your returns and ensure you have access to the funds when you need them.
• Your risk tolerance: Investments have various degrees of risk. You need to decide if you will be comfortable investing in something that may decrease in value in the short term while you wait for it to increase over the long term. You may prefer an investment with guaranteed returns.
• Investing in your name or the student's name: Think carefully before putting money in the student's name. Student's assets can weigh more than the parents when the school determines eligibility for financial aid.
• Tax benefits: If the asset is in the student's name, the income may be taxed at a lower rate than the parents' tax rate. Many savings plans grow tax free until withdrawal.