By Bob Cole, President & CEO, Private College 529 Plan
January 7, 2019
Happy 2019 to all!
If you are reading this, you are likely to have some interest in planning and saving for college. As we enter the new year, total student debt is nearly $1.5 trillion. And, when it comes to paying for college, the best advice comes from William Shakespeare: “Neither a borrower nor lender be.” What I take from that advice is a reminder to be more self-reliant when it comes to creating a future.
Before entering the 529 world, I spent two decades in college finance developing programs that help families out of college debt. I’ve seen firsthand that the best path is to borrow as little as possible. Before families wade into the thicket of subsidized loans, unsubsidized loans, parent loans, etc., they should try to avoid the question by planning and saving or prepaying.
Here are some key planning steps to use in 2019:
Start early. It is never too early to begin saving or prepaying for college. (It also is never too late.) The longer you are putting money aside, the more compound growth will work in your favor. Did you know you can open a 529 account even before the baby is born? Simply open the account with yourself as beneficiary. Once the child is born and acquires a Social Security Number, change the beneficiary of your account to be the child.
Don’t be frightened by college sticker prices. The cost of both public and private higher education projected 10 or 15 years ahead is scary. I also find that true for what experts say I need to save for retirement or how much insulation is needed in my attic! The key is don’t let numbers freeze you into doing nothing. Very few people pay the full “sticker” price of college. There are many net price calculators online, and every college must have one. Use those to estimate what you might actually have to shell out in the future.
Estimate a savings goal. With net pricing in mind, set a goal for how much you can really save. There are several rules‑of‑thumb from saving one-third of the estimated cost to age-based standards. Whatever the amount, it’s money you or your child/grandchild won’t have to borrow.
Look for opportunities to put money aside. We all know making ends meet is hard and finding money for future goals is a challenge. I like to look proactively for sources of money. When my children “graduated” from diapers, I used some of the money we’d been spending on diapers as savings. You can do the same when you no longer have day-care costs, or when you get a raise or bonus or a tax refund. Almost all 529 plans offer opportunities to ask friends and relatives to make gifts to college savings or prepaid tuition accounts.
We all have a list of things we’d like to accomplish in 2019. Let’s make limiting future student debt one of them!
About the author
Bob Cole is President and CEO of Private College 529 Plan, operated by nearly 300 private colleges and universities nationwide.