Six Last-Minute Strategies to Save for College

Advising parents who haven't started saving for college a little too late can be a very difficult conversation.  Telling a student who has worked diligently over the last 3 or 4 years to get into a prestigious college or the college of their dreams that they can’t afford to go is gut-wrenching.

The Cost of College is Still Increasing

While inflation may have seemed tame over the past several years, the cost of tuition has been accelerating at an annual rate of 5% over the past ten years.  According to the College Board, the average cost of tuition and fees for the 2015–2016 school year was $32,405 at private colleges, $9,410 for state residents at public colleges, and $23,893 for out-of-state residents attending public universities.The College Board reports that the average cost of room and board in 2015–2016 ranged from $10,138 at four-year public schools to $11,516 at private schools. Colleges also provide room and board estimates for living off-campus based on typical student costs.

What Can Parents Do

1. Begin with trying to figure out what college will costs

• Tuition
• Room & Board
• Books
• Transportation
• Incidentals

2. Look to investment vehicles with tax benefits

• 529 Plan
  • Assets grow tax-free when used for qualifying college expenses such as tuition, room, and board
  • Check with your home state as you could receive a deduction off your State income tax. In Michigan through their MESP program, you could deduct up to $6,000.
• Student Funded Roth IRA
  • Contributions to a Roth IRA can be withdrawn tax-free without penalty to pay for college while any earnings stay in the account and grow tax-free for retirement
  • You would want to take a conservative investment approach as you would need to access the assets within a relatively short period.
  • The key to this option is that the student must be able to show earned income. The contribution limit for a Roth IRA is currently $5,500.

3. Get Family Members Involved with a Savings Plan

• This is where 529 plans have an additional bonus in which anyone can contribute to them. Rather than birthday or holiday gifts, get a family member to make contributions instead.

4. Look for Additional Income Resources

• Explore works options for a spouse who has been outside of the workforce.
• Investigate work options for the student either before entering college and during college.

5. Consider Other or Low-Cost College Options

• Have a straight-forward conversation with your student about other viable college options which could include the following;
  • If considering an out-of-state public school, consider an in-state public school. An out-of-state public school could cost double the amount or more than the in-state cost.  Are you getting an additional 100% return on your investment?
  • If there is a desire to stay local, consider a community college for the first two years. Again, you could cut your initial tuition bill by 50%.

Finally, if your child is still a year or two out from high school graduation, look at what options are available to take Advanced Placement (AP) classes or, classes at a local community college that would be transferable to the colleges that your child is looking to attend.  I have had clients who had their children start college as a sophomore based upon the college credits that they were able to generate while still in high school.A strategy such as this is one that I would implore parents to look into during the early years of their children’s high school years.  With four kids of my own, this is definitely a low-cost strategy that I will be keeping my eyes on for my kids.After taking in all your available options, you need to consider how much debt is reasonable to take on when considering what college to attend.  While the connections you may generate by going to an Ivy League school may be great if you are going into a field such as teaching for example that pays relatively low salaries, that Ivy League degree may not be the best option.Lastly, as tempting as it may be, I strongly discourage parents from robbing their retirement assets to pay the cost of their child’s college education.  You can always get a loan for college, but you can’t get a loan for retirement.