With college graduations happening all over the country this month, I wanted to speak to younger parents (like me) or even future parents who are thinking about helping pay for their college education. With the cost of a university education rising year after year, it can seem like a daunting task to help pay for such a huge bill. Hopefully, these few tips can get you on the right track.
Start saving early … and I mean really, REALLY early
One thing I really wish I knew before I had kids is that you can open a 529 college savings account at any time for anyone. That’s right, you can even start saving BEFORE your kids are born. So, if you’re already married and know that you will want to have children, you can start saving now. Open a 529 and put the beneficiary as your spouse, then once your child is born, you can name your newborn as the beneficiary. The longer the runway you give your investments, the better the chances that compound interest will grow your college savings nest egg.
Change your beneficiaries
Let’s say you have two or three kids and your first decides to skip college or gets a full-ride scholarship to Notre Dame to play football (a parent can dream), you can immediately change the beneficiary on one of your 529 accounts to your next child so that those funds can be used to help fund their education. Let’s say you are raising three valedictorians who all get full-ride scholarships to their schools of choice. You can keep the 529s and change the beneficiary down the road to help your grandchildren. Think of all the compounding work that could be done for your grandkids!
Be honest with yourself and your kids
Paying the full tuition for your child/children may not even be feasible. My wife and I are doing all we can to help our kids (ages 8 and 4) with their college expenses, but the truth is, we probably won’t save enough to pay the entire bill. There are lots of opportunities for small scholarships, financial aid packages, and – if necessary – student loans. As your kids reach high school age, be upfront with them about how much you’ve saved and what that might pay for. It might only be able to pay for a four-year public university. Perhaps it will pay for two years of community college and then two years at a public university. If your child has a dream to attend a private college, then discuss with them the dangers of debt. Obviously, student loan debt is a much better investment than a credit card but discuss how different degrees may affect how easy it may be to pay off that loan.
Ultimately, paying for a child’s university education is something that you should discuss with a financial advisor to determine the best course of action. Securing your own retirement should be the primary focus before turning to college savings. It doesn’t make much sense to use funds that could help you make it through retirement to help pay for your child’s educational costs if it means becoming a financial burden on them down the road. Having a financial partner like KWB Wealth can help you visualize what saving, both for retirement and your children’s education can look like. And, hopefully, seeing that Notre Dame diploma on the wall when you visit your grandchildren (again, I can dream, right?)
~ Steve Gormley