How do I save for college?

October 8, 2007 8:41 AM

How do I help my girlfriend make sure her daughter has the resources to pursue a college education?

I guess I was kind of privileged. My grandparents and my parents came together when I was nothing but a baby to invest in the Michigan Educational Trust, and, when the time came, my tuition was in the bag and I only had to worry about room and board. Hooray.

My girlfriend has a daughter who is 8. As far as I know, neither she (or the ex-husband) have made any provisions for college, and this concerns me!

I mean, I don't blame them. They're both around 30, and I know, from discussions (with my girlfriend, at least) that they want to save, they just don't know where to start, and with the rush and bustle of making it through the day, it's just one of those things that gets pushed to the back burner.

That's where you guys come in - or, at least, I hope you it's where you guys come in. I'd like to get some information about ways to start - who to talk to, what to do - so that I can hopefully break down an immense problem ("How do I save for my child's college?!") into a manageable first step.

Both parents pull in around 50K a year, more or less. First, is it time to panic? As I said, her daughter is 8. If they start saving conservatively now, will there be enough in the bank when it comes time to enroll in college when she turns 18? I know this depends on a lot of things - in-state vs out-of-state, Yale vs Washtenaw Community College - so let's just assume I'm asking as generically as possible.

Second, where do they start? I've heard a lot about something called a 529 plan. Is that the best way to go? And if it is, who do they talk to? Do they just go to a government website and download the appropriate paperwork? Or do they talk to a financial planner? If it's a financial planner, where do they find one who's reputable? Do they go to their local bank and talk to someone there? You can see, for the financially naive, that this is a dark and mysterious road full of mystery.

Any advice or thoughts you might have on this subject in general would be greatly appreciate.. and not just by me! You're helping the future!

posted by kbanas to work & money (17 comments total)

a lot of financial planners specialize in exactly this area. i'm sure you know this already, but a good f.p. would be the best place to start. maybe someone here can recommend a good one around where you live?
posted by buka at 8:51 AM on October 8, 2007

Good answers to this question here: http://ask.metafilter.com/61989/Best-Savings-Option-for-Education

Including, if I may say modestly, my own, where I talk about what resources were helpful to me in figuring out this question.
posted by not that girl at 8:52 AM on October 8, 2007

Sorry, let me make that link active for you.
posted by not that girl at 8:53 AM on October 8, 2007

Here's the thing about college - getting loans is REALLY easy. Her parents should worry about saving for their own retirements rather than her college.

Here's a guide to financial aid that I wrote previously. Let's assume that not much will change in the next 10 years.
posted by k8t at 8:54 AM on October 8, 2007

Yes, getting loans is really easy. Paying them off is something else again.

A 529b is a good place to start. Where are your friends located? Usually, if you go with your state's plan, you can deduct the amount you deposit from state income tax, which is a help. The money is also taxed at the student's rate when it's time to withdraw. The real advantage is that they will deduct a set amount from your checking account every month.

Is it time to panic? That depends. Community colleges are usually fairly cheap. In-state colleges cost anywhere from a few thousand dollars per year to tens of thousands of dollars. The University of Michigan, in state, with tuition, room & board costs about $25,000 this year. At U Penn, a private school, the tuition alone is $56,000.

Eight is not too late to start, but I sure wouldn't wait any longer. And, with incomes totaling $100k, they'd be nuts not to start saving now. They're not going to get need-based scholarships with that kind of money.
posted by clarkstonian at 8:59 AM on October 8, 2007

K8t is right, to an extent - loans are easy to get, although her eligibility for the best kinds of loans (or need-based financial aid) will depend on what school she's going to.

On the other hand, it'd be nice for her daughter to not be saddled with 80000 in debt once she gets done with undergrad.
posted by dismas at 9:02 AM on October 8, 2007

I would question your assumption that they need to save for their daughter's education. Their daughter can always take out loans and repay them when she becomes a doctor or an astronaut or whatever.

Whether the parents pay for the children or the children pay for themselves, one generation is always paying for one college education.
posted by mpls2 at 9:05 AM on October 8, 2007

(my parents didn't give me a dime, and i'm doing fine)
posted by mpls2 at 9:07 AM on October 8, 2007

Are your friends interested in getting your help? It sounds like you're trying to do something nice for them, but before you get involved, I'd make sure that they're not going to take it as meddlesome at best and severely overstepping your bounds and criticizing their parenting at worst.
posted by occhiblu at 9:18 AM on October 8, 2007

(Wait, is this girlfriend as in "friend who's a woman" or girlfriend as in "the woman I'm dating"? If this is the daughter of the woman you're dating, and it's a serious relationship such that you also have a strong relationship with the daughter, then you might consider setting up something for the daughter yourself and "Here's how to be responsible parents" lessons out of it.)
posted by occhiblu at 9:20 AM on October 8, 2007

should have been "... and leaving the "Here's how to be responsible parents" lessons out of it.)" Sorry.
posted by occhiblu at 9:21 AM on October 8, 2007

Whereas my parents made too much for me to be eligible for anything in the way of need-based aid, and I wasn't a stellar enough student to get substantial merit aid, so if I hadn't received help from them, I'd currently have a nearly crippling debt load that would keep me miserable and near-broke for a decade, and I went to a state school and make decent money for a recent grad.

If you want to have any meaningful freedom after graduation, you can't have massive debt. If you're staring at $80,000 at 6% APR after borrowing your way through even a relatively affordable school plus housing plus food etc, every single decision you make is going to boil down to "what will make me enough money to survive this debt?" instead of, y'know, pursuing happiness.

(Note that this isn't actual advise, just a counterargument to the "eh, don't worry, let the kid borrow it all themselves" crowd.)
posted by Tomorrowful at 9:22 AM on October 8, 2007 [3 favorites]

Philosophically, while I worked my way through college paying for most all of it myself, my wife and I don't want the same for our daughters.

So, practically, we set up 529 accounts for both our daughters when they were very young ... 7 and 4 as I recall. We deposited a lump sum to get started, then set up a payroll deposit plan where a set amount went directly to the 529s every month. We then added little chunks here and there when we could afford it. We targeted a tuition for a large state university (but ended up adjusting upward).

Our eldest started her freshman year in college this September. We'll continue to make the monthly payment for the next four years. (I should ad that much of this comes from a second job I took to make this possible.)

We did it all through a Merril Lynch advisor. Just pick up the phone and call. We never paid a fee to them. There are some minor fees buried in the investment but we gladly pay them as all the paperwork, watchdog work and detail work is handled by them. And we have one person, a real person, we talk to all the time.

Personally, and I can't say this clear enough, YES, START NOW! We're are at that point where most all of our friends with children are dealing with college. Watching those not financially prepared deal with the demands is heart-rending.

We can see the direct connection between debt and happiness. We chose to give our children the gift of at least starting their adult lives debt free.

Once again, just our experience. I'm sure there are other ways. For me, I just thank the stars we did this.
posted by lpsguy at 10:43 AM on October 8, 2007 [1 favorite]

For my husband's side of the family...My husband and I contribute to our nephews' college plans for holidays. For birthdays and xmas, we get them something small and then write a check for their college funds. Their parents LOVE this, as the kids have everything they need already. So, be sure to get the relatives on board with the college savings plan. It makes Christmas and birthday shopping so much easier.
posted by pluckysparrow at 11:36 AM on October 8, 2007

Assuming your girlfriend lives in Michigan (from your current location and your WCC reference), the MET program is still available. Of course, the benefit to buying it now will not be as high as having bought it when said daughter was a baby.

In case you haven't already found it, there are some savings calculators etc on the Michigan Educational Savings Plan (529) page. It couldn't hurt to forward that link you your girlfriend.

I'll also second what was said above about student loans not being that big a deal. Taking out loans for the same (excellent but relatively cheap) public universities that the MET covers, it should not be difficult to get federal (ie lower interest rate) loans, work study, and some need-based aid for a family making $50k. Of course, if your girlfriend or her ex expect to make more money than that by the time Daughter is college-bound, more of that debt will be from private lenders.

(or, if I misunderstood you, and the parents make $50K each, then the expected family contribution will be much higher and loans will be a less prudent option as more of it will be through higher interest private loans)
posted by twoporedomain at 11:50 AM on October 8, 2007

Pay for the first year or two, but why does everyone assume the parents are responsible for bearing the whole cost of their children's education?

Working, a year before college or part-time throughout, will give one a much greater understanding of the true value of an education that simply being handed $80k (in effect), and contrary to popular belief, unless your child has a major disability, will not cause lower academic performance.

No, I am not making absolute generalizations. Please don't come at me with your "My parents paid for me and I'm JUST FINE!" stories, because I'm fully aware that those exist, too.

For that matter, I don't advocate going the other way, because I'm paying my own way entirely now, and while it gives me a huge sense of the value of my education, having paid in many hours of sweat and hard work for every class I take or book I buy, it's also meant that I'm 24 (and -finally- eligible for "independent status" on the FAFSA, bloody Feds) and have only recently achieved second-year status.

But combine the possible benefit to the child of having them pay for him/herself, with the almost-certain detriment to your own finances caused by taking on a (possibly) $100k or more educational commitment, rather than putting that money into your own retirement, and I think there's a pretty good case. You've heard of those folks taking out a second mortgage on their home to pay for their kids' college? Don't be those people.

As far as actually answering the question (heh), I have no direct experience, but have friends who use and say good things about the 529, and I think if you're only looking at half the total cost, it's going to be a heck of a lot less worrisome if you've got 10 years to save. That sort of goal should be easily achievable, given those incomes and that timeframe.
posted by po at 3:15 PM on October 8, 2007

529 plans and other governmentally supported/legislated plans are great for people who are planning on paying for 100% of college education. However, for people who think they will need financial assistance, these plans can give the idiots at FAFSA a false idea of your ability to pay, as it comes off the expected family contribution dollar for dollar, as opposed to a percentage.

If they think they are going to need a fair amount of financial aid, they might want to just invest in mutual funds, CDs or other open, liquid plans. FAFSA (this is the agency that decides that you can pay $23K per year for college even tho you only net $67-- do I sound bitter?) assumes that parents will contribute 2% of their liquid, non-home assets and students 35% of theirs, UNLESS those assets are a 529 or similar plan. Those go at 100%. So unless you think you can save all of the tuition in one of these, they are not necessarily the best choice.

(I am not a financial professional, just a parent who got burned.)
posted by nax at 12:49 PM on October 9, 2007