College

Why Paying for College May Be Easier Than You Think

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What to do when college costs seem to be soaring beyond your family's reach.

Tuition and fees for both private and public schools grew more than twice as fast as inflation last year, according to the College Board. If current trends continue, the total cost, with room and board, of four years at an instate public university will hit $160,000 for the class of 2036. (That’s babies born this year.) About 60% of parents with six-figure household earnings are concerned they won’t be able to afford college, says Gallup. In fact, college savings trumps retirement as the top worry for parents with children in the home. Here are some ways to prepare for this investment in your child’s future without derailing your own.

Use the One-Third Rule

You can successfully send your child to college without saving for the full fare. Financial aid expert Mark Kantrowitz of Edvisors.com says savings should pay about a third of expected college costs. Another third can come from current income, and a third from loans. If you expect to send your child to an in-state public college, Kantrowitz suggests saving $250 a month from birth. For a private school it’s about $500 a month.

Open a 529 Early, Even With a Small Amount

When your child is first born, you have a lot of big new expenses. That’s why parents generally start when their kid is already 6 or 7, according to Sallie Mae. But even if you can toss in only $25 or $50 a month, open a 529 college savings plan as soon as possible. For one thing, each dollar you invest early can work a little harder, since more time means you can handle more risk. Vanguard’s Moderate age-based 529 fund holds 75% of assets in stocks for a child younger than 5 years old, but only 50% from ages 6 to 10. A 529 account also gives you a place to stash windfalls or gifts.

With a 529, you don’t pay taxes on investment gains when you use the money for college. In many states you can deduct contributions from state taxes, though often only if you use the state’s designated plan. Find the tax rules in your state at Savingforcollege.com. If state tax isn’t an issue, the Utah Educational Savings Plan has low costs and solid fund choices. It’s available nationwide.

Money

Apply Strategically

Your child should apply to at least one in-state public school, and, among privates, some where she will be among the stronger applicants, to improve her shot at an aid offer. Also, apply to two similar schools that compete for your kind of kid. Just remember, it’s no savings to send your child to a weak school that doesn’t get her to graduation. Get graduation rates and other school stats at CollegeResults.org.

Cap the Debt

As acceptances roll in, the worry shifts to your child’s debt. Adviser Kashian suggests limiting total debt to a year of expected post-grad pay. A baseline for Mr. Undeclared: New liberal arts grads make about $36,000.

Adapted from “Never Worry About Money Again,” by Carla Fried, Ian Salisbury, and Taylor Tepper, which appeared in the July 2015 issue of MONEY magazine.

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