Finding Money To Save For College
August 24, 2009 – 6:26 amWith two new twin girls in the family, my wife and I are starting to think about college. We have been saving money as diligently as we could for a while, and these funds haven’t necessarily been earmarked for a specific purpose. We think of them primarily as retirement funds, but some of the money is in after tax accounts and could potentially be used to fund college if need be.
I’ll be honest though that I’m still not convinced that we should pay for our kids college. I’d like to be able to help them to some degree, but I do not feel obligate to take on all or even most of the burden necessarily.
With that being said though I would like to do what I can when I can, and my wife and I have set aside a little money in our budget this year to fund an Educational IRA. The beauty of this investment choice is that the funds can be used for any educational expense, even before the kids are in college. We’re too far away to make decisions on elementary school educational choices, but we may consider home-schooling. If we do end up home schooling the funds in the Educational IRA could be used for books, materials, tutors, music lessons, software, and a variety of other things. I’ll definitely need to verify this before I pull money out of these funds, and you should do the same if you go down this route.
The educational IRA limits are $2,000 per person per year, which to me is a pretty high limit if you fund it every year. If you have more money than this to use you could put additional funds in a 529 plan. Finding room in our budget to absorb a $1,000 or so hit is difficult though. Some will come from tax savings, but the rest will need to be squeezed out from our other expense buckets. For now my wife and I have agreed to decrease our vacation budget by 1/2 so that we can fund part of the educational IRA’s. We shouldn’t need to travel much this year, although we may increase the vacation budget in upcoming years if we decide to take a trip or two. We may also need to reduce how much we’re putting into our car replacement fund.
If you’re saving for college, how did you find a way to save? Did you simply reduce your retirement savings?
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One Response to “Finding Money To Save For College”
I’ve seen a few statements regarding parents helping their children with higher education, and thought I would add my thoughts. While I support the view that parents are not obligated to support their children through college, I think its worth mentioning some implications.
Currently, when completing the application for federal student aid (FAFSA), parent’s savings/income, etc. is required for a dependent student (with few expections), and the end result is a Expected Family Contribution (EFC), which is the amount a parent is “expected” to help their child. This number goes down for more children in school (on a per child basis), and up with higher incomes/savings. The EFC is then a big factor in the type of aid that a student is eligable for, such as subsidized and unsubsidized loans.
What this means is that the student of a well-off family that chooses not to help with education (so despite a “high” EFC, they pay $0) might be only eligable for unsubidized loans, which are much more expensive than subsidized. Meanwhile, a poor family might have a low EFC, and the student eligable for a subsidized loan, while paying nothing. So from the perspective of both students, they have received nothing from their parents, but will end up in different positions in terms of their loans. The fact that a well-off family provides $0 does not matter, it is the EFC.
I won’t make an argument whether it is right for government aid to be decided in this manner, but I do wonder if it is moral for a well-off parent to put their child(ren) at an actual disadvantage, in cases where they are not eligable for the better financial aid products, and do not receive family help either. Thoughts?
By Kevin on Aug 24, 2009