Starting a College Fund

Starting a College Fund

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Starting early proves to be cheaper whether you’re a Solo Mom or not

I often shake my head in disbelief that I have a daughter in college. I still picture her as a kindergartner getting on the bus in the morning like it was yesterday. The time goes so fast! You parents of older children can relate, while those of you with young ones at home may feel deep in the weeds. But the fact is that college sneaks up on you.

I talk to people too often who are still struggling to pay off college loan debt and have been for decades. The class of 2015 graduated with an average debt of $35,000 per borrower, according to the Wall Street Journal, which is no way to start your adult life, especially when most grads aren’t making much money yet. All it takes is a little planning and saving by us Solo Moms early in life, and we can catapult our kids to a brighter, student loan–free life. Let time and compound interest work in your and your child’s favor.

Here’s the math, put simply: an average college education at a four-year institution costs $21,109 per year for tuition and fees. Multiply that by four years, and the cost for tuition and fees is approximately $85,000. Yes, it’s a serious situation and one you need to get to work on now if you have children, no matter their age.

Not to worry! I’m here for you, and I’ve asked Susan M. Miccio, a wonderful Solo Mom friend of mine who is a wealth planner at Marshall & Sterling Wealth Advisors, to help us by sharing her best tips for saving for college.

Step 1: Start early

As soon as your sweet baby has a Social Security number, you can open a tax-advantaged college savings plan for your little one. Miccio says, “Start early; most parents think they have time. Before you know it, your child is in high school, and you are scrambling. If you start early, you can contribute smaller amounts (preferably monthly), which are easier on the budget. Starting early also allows time for your investments to grow. You can open a 529 account for as little as $25. Most states have education savings plans, also called 529 plans, which allow in excess of $200,000 over the life of the account. Your assets grow tax deferred, and withdrawals are federal-income-tax exempt when used for higher education.”

Step 2: Save smart

Whether you decide to open an education savings plan or not, make sure you are saving for your child’s education outside your retirement accounts. Miccio advises, “Do not fund your child’s education with your retirement accounts. This is a big mistake! We all want our children to have a good start in life; however, you should not risk your own retirement to provide an education [for] your children. You will not be able to make up large withdrawals from your investments before you retire. In addition, the timing of a withdrawal may not be good for your investments. You should continue to fund your retirement until you retire whenever it is possible. If you want to help your children, help them pay the loans down.” Remember that you cannot get loans to finance your retirement, but you can get loans to finance your child’s education, if necessary.

Step 3: Be cautious about how you make up for a shortfall

So, what happens if your child is nearing college age, and you have no idea how to fund his education? What’s the best option? “It is not recommended to get a home-equity line of credit (HELOC) to pay for your child’s schooling,” Miccio says. “Tapping the value of your home is something that should be done very cautiously and for a very narrow set of reasons. The pros of using a HELOC are: 1) interest rates are better than private student loans and even some federal student loans; 2) you can deduct the mortgage interest at tax time. The cons of using a HELOC: 1) the interest is not tax deductible if you are subject to [the] alternative minimum tax; 2) the HELOC can be cut off at any time if your property value drops; and 3) the HELOC loan will always need to be paid back, whereas student loans can be deferred and sometimes forgiven if the student graduates with teaching or medical training and chooses to work in certain areas, or if (God forbid!) your child dies or becomes disabled.”

Step 4: Have a realistic budget

When it comes time for your child to choose a college and a course of study, you need to set a realistic budget for her, so that you and your child can afford each year of schooling. Mentor her to choose a course of study that will provide her with the skills to make a decent living, unless you want her to live with you for another decade while she pays off student-loan debt. For example, if you cannot afford the tuition at an Ivy League university—most of us can’t—let her know that she cannot attend that institution and rack up hundreds of thousands of dollars in student loans to study for a career that will not result in a job with a salary to make her minimum loan payments. There are plenty of state universities where students can get a great education and be in a healthy financial situation when they graduate.

The most important recommendation that Miccio and I have for you to make college saving easier on your budget is to plan ahead. Start saving as early as possible, and let time and compound interest work in your favor. Also, make use of all the scholarship opportunities available. Make it your high schooler’s part-time job to research and apply for scholarships. Just as in life, planning ahead and working hard will result in the life you want!

These are big decisions. Did you know you can reach out to your Solo Mom Sisters for support?

Jeanne Kelly, ESME's Resource Guide for Work and Finance, is a Solo Mom who founded the Kelly Group, a company that provides credit counseling to individuals and organizations. She has appeared on the Today show and has also been quoted in media outlets such as CNN, Money, and the New York Times. Kelly is the author of the book The 90-Day Credit Challenge.

Please feel free to contact us with any comments or questions.

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