Newspaper Page Text
10
Investing in
education
starts with
smart
savings plan
tart figuring how much you'll
need to put a child through col
lege, and you might as well be
talking about play money. The
amounts seem too astronomical to be
real.
Today, a year at a public university
costs between SIO,OOO and $15,000.
That’s counting tuition, room and
board, books, travel and miscellaneous
expenses. Private schools can run
double or triple that.
If you have a two-year-old child, and
if college costs continue to rise at their
current pace, your child could pay more
than $150,000 for four years at the
same university, and close to half a
million dollars at a private school.
And that’s just for one child.
“The biggest pitfall is waiting too
late,” said certified financial plan
ner Philip Sgariglia, president of Fi
nancial Servicenter Corp. in New
Lenox, Illinois. “The best thing (par
ents) can dois start early. Basically,
those college expenses are growing
at a faster rate than inflation.”
Before you start circling phone
numbers for correspondence truck
driving schools, take heart. Even if
few families can fathom saving
$150,000, many can save enough to
put a sizable dent in that bill.
“The key issue is whether a family
has any discretionary income,” said
Jerry Augsburger, financial aid di
rector at Northern Illinois Univer
sity in DeKalb. “A family learns to
live narrowly within its level of in
come, whether it’s $20,000 or
$200,000.”
By Jim Killam
Copley News Service
A penny
SAVED
& B
ko R 4
Ex
perts
agree:
N o
matter
how old*
your chil-
dren are,
start savingnow
so the money has
time to compound.
Evenifit’sslooa
month or less, de
velop this habit and
then add more as
you're able.
“It’s good to talk
about it even when the child is young
so you know what your long-term
strategy is,” Sgariglia said. “The
problem you run into (when you wait)
is that you can’t take as many risks.
You can’t be as aggressive with that
investment because you have a
shorter term time horizon.”
Now, how and where to save it?
Tony Devassy, a certified financial
planner for American Express Finan
cial Services in Lemont, Illinois, has
conducted college savings seminars
for parents in the Homer Township
school system. He said the most com
mon mistake parents make is to save
money in their child’s name. What
may seem like a tax advantage now —
you pay less on the interest if the
money isn’t in your name — may bite
you later.
“That’s the first thing that college
financial aid looks at,” Devassy said.
“If it’s in the child’s name, that money
reduces their grant and aid eligibil
ity.”
Here’s an even scarier reason to
keep the money in your name: “If you
put money in the child’s name, it is
looked at as an irrevocable gift,”
Devassy said. “The parents can’t take
The Georgia investor * An Advertising Supplement to Augusta Focus Newspaper ¢ FALL ¢ 1998
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So, if Junior turns 18 and decides he needs to
spend a year finding himself, your hard-earned
money could end up paying for a beach-front
condo instead of books and tuition.
‘With the money in your name, investment
decisions depend a lot on your children’s
ages. Money magazine's recently
published “College Guide” (http:/
fwww.pathfinder.com) suggests
that, if your children are under
13, stocks are your best invest
ment. In an equity fund, your sav
ings will have time to weather any
stock market downturns. If your
| children are over 13, think about
reducing your risk with fixed-in
come securities -- bonds with av
lr elrage maturities of 10 years or
ess.
" You can do some of that ma
neuvering within a 401(k) plan -
- -apotentially powerful way to save
for college because employers often
match your contributions and be
cause the earnings are tax-free until
" you withdraw the money. But be
careful.
“Our studies show that a lot of par
ents take money from their 401(k) plans
and then end up having to postpone
their retirements,” Devassy said.
An option recommended by
Raymond Loewe of College Money, a
financial planning firm in Marlton,
New Jersey, is to go ahead and save
aggressively for retirement through a
401(k) plant. But, don’t borrow from
that money to pay for your child’s
college. There are too many tax pit
falls and changing rules as to how
much you can borrow and when.
Instead, Loewe advises, borrow the
college money through a government
loan program or a home equity loan. If
you've saved diligently, your retire
ment fund will be healthy by that
time. You’ll be able to scale back your
retirement fund contributions and di
vert money toward repaying the col
lege loans. Or, you can comfortably
stretch those loan payments into your
retirement.
Devassy concurs. In fact, he urges
people to pay all they can against their
mortgage principle, since the parents’
home equity doesn’t count against a
student’s grant and aid eligibility.
Then, use a home equity loan for col
lege and enjoy tax advantages on the
interest you pay.
Other advice:
®Even if you know your income is
too high for your student to qualify for
No matter
how old your
children are,
start saving
now so the
money has
time to
compound.
grants, apply anyway, Devassy said.
Getting rejected could increase your
chances of getting a government loan.
®lnvestigate carefully before you buy
into any new programs where you can
pay tuition in advance at today’s rates.
Depending on when you start saving,
your money might go further if you
invest it on your own. And, you retain
control over it and don’t lock your child
into attending one of a small group of
schools.
®Don’t feel like you have to cover the
entire cost of your child’s college edu
cation. He or she will take it more
seriously if their earnings and savings
go into the pot, too.
Loewe recommends this as a guide
line: save one-third, borrow one-third,
and make your student responsible for
one-third, through loans and jobs.
College saving boils down to priori
ties. Isit more important to buy that
bigger house and take those expen
sive vacations, or to save for your
children’s future?
“I used to sit down with and explain
to families that they were marginally
eligible for financial aid, or not eligible
at all,” Augsburger said.
“Thirty years ago, the common re
sponse was, ‘Thank you for helping
and explaining things. By God, one
way or another, we'll see to it that
Johnny or Susie goes to college even if
we have to sacrifice.’ >
“Today, that response isn’t so com
mon,” he added. “I head, ‘Something’s
wrong. We should be eligible for some
thing and we want our share:™
With a little persistence and fore
sight, that’s an unhappy scenario you
can leave for someone else.