Families worried about how to save for college can hold a financial summit to consider options and create a working plan.
Families can address growing concerns about how to save for college by holding a strategy meeting to explore options and create a working plan, says Sallie Mae, a firm specializing in financial services to college students.
“College ranks among the most significant financial decisions a family will make, often second only to the purchase of a home,” Jeff Howkins, president of Sallie Mae’s Upromise Investments, said in a press release kicking off National College Savings Month this September.
Paying for college is an increasing concern of today’s families who see college costs rising even as their wealth and income decline in the prolonged downturn. Concerns about how to pay for college extend to even the wealthiest households, according to a March survey by Millionaire Corner. While concern was most acute for non-Millionaire families, half of young Millionaire households worry about financing their children’s education and 36 percent of investors age 65 and older are worried about paying for the education of their grandchildren.
“The best action families can take now is to set aside time to openly discuss school choices, understand future costs and create a realistic financial plan,” said Howkins. Sallie Mae recommends starting the discussion by calculating the costs of attending various colleges. Families can then decide whether parents can cover all, some or none of the expenses and determine a student’s financial aid needs. Planning how to pay for college should be part of a holistic strategy. Parents must balance paying ongoing living expenses while saving for both college and retirement.
Children can invest in their future by saving part of their weekly allowance, baby sitting money or other income. “Little by little each contribution however small can add up over time and serve as a reminder of the goal to attend college,” said Sallie Mae.
Many families chose to save for college through state-sponsored 529 savings plans. The programs grow tax free and can be withdrawn tax-free when used to pay for qualified educational expenses. Many states offer additional tax breaks for residents contributing to an in-state plan. In the 2010-11 school year, 14 percent of undergraduate students tapped into a 529 plan and used an average of $5,729 to pay for tuition, books and fees. Friends and extended family can contribute to a 529.
Last academic year, parents paid for 37 percent of college costs through savings, income and loans, Sallie Mae said. Students contributed 11 percent from income and savings, and another 15 percent through federal student loans and private educational loans.