In the Opinion section of today's USA Today, it was revealed that over the last decade, college professor's salaries have increased nearly 35%. No one wants to begrudge a good teacher her just due, but the problem is that while colleges are doling out more and more to teachers, construction, and athletic programs, students are the ones paying the bill.
"Until recently, heavy competition among applicants, and plentiful loans and home equity money, gave colleges little incentive to control spending. Why make tough choices if you can pass costs along to parents and students? That game is over, but some schools appear slow to realize it," reports USA Today.
This all means that saving for college is now more important that ever, but in this economy, what's a parent supposed to do? That's exactly what Tentaculata wants to know. She's bewildered by the options-- 529 plans, traditional savings, custodial accounts... lucky for her (and the rest of us) a very knowledgeable mom TrudyP gave a wealth of accurate info:
A 529 is a good place to start (and you should definitely have it at the top of your list), but just like every other plan you should consider diversity. Don't put all your eggs into one basket. Keep in mind that the 529 is tax free, but when to take it out it has to be for education. Whatever is leftover will not only be taxed but assessed a penalty.
I like to recommend investment tools that give you multiple avenues of disbursement. For example, you could consider putting some into your IRA. I am also a big fan of investing in whole life policies. That way you not only have a minimum guaranteed rate of return, but you also have a guaranteed death benefit which is equally important to consider when planning for your child's education.
Coming up with a strategy for saving for college is s personal issue, but I've found that comparing notes with other "been there, done that" mothers like Trudy is really smart to do. Another strategy to employ as you start your child's savings, is checking in with the experts. The following list from CNN Money is one I'm officially using as my own beginner's guide to savings. I'm determined to make college a reality for my boys, no matter what it takes. If you feel like I do, hopefully these top things to know will set you on your way!
1. Saving for your own retirement is more important than saving for college.
Your children will have more sources of money for college than you will have for your golden years, so don't sacrifice your retirement savings.
2. The sooner you start saving, the better.
Even modest savings can pack a punch if you give them enough time to grow. Investing just $100 a month for 18 years will yield $48,000, assuming an 8% average annual return.
3. Stocks are best for your college savings portfolio.
With tuition costs rising faster than inflation, a portfolio tilted toward stocks is the best way to build enough savings in the long term. As your child approaches college age, you can shelter your returns by switching more money into bonds and cash.
4. You don't have to save the entire cost of four years of college.
Federal, state, and private grants and loans can bridge the gap between your savings and tuition bills, even if you think you make too much to qualify.
5. With mutual funds, investing for college is simple.
Investing in mutual funds puts a professional in charge of your savings so that you don't have to watch the markets daily.
6. 529 savings plans are a good way to save for college and they offer great tax breaks.
Qualified withdrawals are now free of federal tax and most plans let you save between $100,000 and $270,000 per beneficiary. Plus, there are no income limitations or age restrictions, which means you can start a 529 no matter how much you make or how old your beneficiary is.
7. Tax breaks are almost as good as grants.
You may be able to take two federal tax credits - the Hope Credit and Lifetime Learning Credit - in the years you pay tuition. Or, if your income is too high to qualify for those credits, you may qualify for a higher education expense deduction that will be in effect through 2009 and is extended periodically.
8. The approval process for college loans is more lenient than for other loans.
Late payments on your credit record aren't automatic grounds for refusal of a college loan.
9. Lenders can be flexible when it's time to repay.
There are still ways to cut costs after you graduate and begin repaying your student loans. For instance, there is often a one-quarter percentage point interest rate decrease if you set up automatic debit, in which monthly payments are automatically taken from your account.
10. Taxpayers with student loans get a tax break.
You may deduct the interest you pay up to $2,500 a year if your modified adjusted gross income is less than $65,000 if you're single or less than $130,000 if you're married filing jointly. The deduction can be taken for the life of the loan.
Have you started saving for your child's college years?