It seems like just yesterday that I was trying to figure out how I am going to pay for three kids to attend college at the same time.
My goal was to pay as much as I could, and also encourage them to have a little skin in the game by going out-of-state to gain more life experience. Not that the University of California or Cal State schools are not good — I just wanted them to be exposed to a broader experience. And the UC system seems to force students into a 5-year program rather than the typical 4-year matriculation needed for a degree.
It used to be that parents (and grandparents) would put money away in an UTMA account, where the income was basically sheltered and the child would receive all of the proceeds when they turned eighteen, whether or not they attended college. But this became problematic as teens were taking the money and using it for expenses not related to college at all. So, Congress created the 529 program, now the most popular way to save for college with more than 90% of all college-savings dollars going into 529 programs.
529 College Savings Plans
529 Plans are similar to Roth IRA Plans. You contribute after-tax money, and it all grows tax-free, and the proceeds are used for post-secondary education-related expenses. However, the parent, or grandparent, always owns the money and can apply these monies to other siblings of the same generation or even take back the principal and interest and pay a small penalty on the gain. So, this gave the control back to the parents, which was needed. Some states allow state-sponsored 529 plans to interact with tuition discounts if used within that particular state, but California has no such program.
When investing in 529 plans, time is your friend. They work best when you deposit monthly amounts from $200 to $5,000 per child, depending on your ability to do this. Of course, lump sum gifts, generally from grandparents, make for a terrific shortcut.
The oldest son's tuition was $64,000 per year, all-in. My daughter was $55,000 and my youngest son was $38,000 per year. All staggering amounts — and this is exactly why proper planning for savings and execution is so essential! With a goal of paying for all or part of tuition, books, and dorm rooms, you can see why saving is so important. However, many schools, especially those out-of-state, offer grants and scholarships that offset their fees. You must do some research to find these, but they are available.
There are student loans available, and parent loans as well. Subsidized loans are the way to go as interest rates do not begin until after graduation and can even be put off with graduate school.
For students who are dependents, federal student loan limits apply as follows:
- First-year undergraduate students: $5,500, with no more than $3,500 as subsidized loans, and generally unlimited thereafter
- Second-year undergraduate students: $6,500, with no more than $4,500 as subsidized loans, and generally unlimited thereafter
- Third- and fourth-year undergraduate students: $7,500, with no more than $5,500 as subsidized loans, and generally unlimited thereafter
We Can Help
Choosing a college with your child may be the most important decision of their young life. College has the potential to completely change their lives. They will choose a major, a direction to begin their career, friends for life, perhaps a mate and future business contacts. These are major lifetime decisions!
As always, please don’t hesitate to reach out and ask for help. College Planning and College Financial Planning have tracks filled with cracks and rocks. A good set of professional eyes may be what it takes to smooth out this road.
All my best,