Saving for Education
(Finding the Best Way to Save for College)

Few financial topics draw more heat than the need to save for education. The ways to save for education are not too controversial, just the amount needed and the cost of financing when loans are involved (after all we naturally expect grants to pay it all, right).

For that reason, if you are anticipating needing money for yourself or for your children, careful planning is a necessity. Saving and paying in advance is the best way to go.

Saving for Education: How Much Do You Need?

How much money you need is an open question. If fact, it appears the question may be more like how much you are willing to pay.

Nevertheless, some good basic information is available. Trends in College Pricing from The College Board (the SAT people) will give you some specifics. [Note: page opens slowly being a pdf of several pages.] According to their report, for example, in 2008-09 in-state students at public four-year colleges and universities faced average charges of $14,333 including room and board each year.

You can spend a lot more, especially at private schools. You can also spend less by taking classes partly or fully at community colleges. And there are a lot of related issues to consider such as whether a degree is even needed for what you want to do and whether school is the best place to learn what you want to learn.

While we cannot go into detail on all the possibilities, each potential student should consider carefully their best way to save for college, not the most recommended or used by others with different needs and options.

What Are the Best Educational Savings Accounts?

The 529 college savings plans are widely recommended and are certainly worth considering. Each state has different educational saving account programs (keep in mind that many states have plans that are open to residents of other states as well) so you must do a little research to discover which would be better for you.

There are different limitations as well as advantages to each. The 5 best college-savings plans on the MSN Money site can get you started in the right direction. These plans are much better than older plans that limited use and controls for contributors, allowing transfer to different children and other advantages.

Be certain to check out the plan for your own state. Many states have special benefits to that state’s residents.

Educational Savings Plans (Coverdale) are probably not worth looking at (my opinion). In many cases you lose any control over what happens to the money if your plans do not work out. More important, at this point, unless congress takes action as of 2010 you are only able to contribute $500 a year. I think you know how far that will go!

An approach I have never seen recommended elsewhere (so if someone sees a problem let me know!) is to take advantage of your Roth IRA. As long as you can cover your retirement goals, and contribute enough in addition to cover education expenses as well, I think it offers some advantages over some educational plans as such. You can withdraw contributions for educational expenses without penalty and the money stays in your personal control.

Actually you can use any vehicle you want to save for college expenses but there are some advantages to using one of the specialized 529 plans. The most obvious is the avoidance of unnecessary taxes. In my view, the most important thing is to adopt and fund some intelligent method for saving in advance as a means to avoid relying on debt.

Educational Savings Issues:
What Is Your Best Way to Save for College?

First, realize that you cannot anticipate everything in advance. This is especially true of education. In fact, most students change areas of interest after enrolling in college, often after a year or two. And each field has its own unique requirements.

If you are a parent wanting to save for your child or if you know you need better training for your work, get started as early as possible saving for education. You will need it no matter which way you go.

Second, don’t buy a pig in a poke. Recently I listened in amazement to someone who spent almost $200,000 for schooling leading to a job earning little over $2,000 a month! I once knew a lady who graduated with a degree only to find that the subjects taught in her classes were so outdated she couldn’t get a job with her skills in the real world. Make sure of the validity and worth of your educational program before investing in it.

Third, think with the end point in view. Don’t go to college for socialization. Join the Jaycees or a church instead. Think about what you want to do. Find out what preparation people in that field really need to have to get a job. Then think about how you can learn what you need to know.

Fourth, think carefully about debt. Like buying a house, getting the right education can offer some justification for limited amounts of debt. But the outrageous amounts of debt that many are incurring, and under such unreasonable terms, is simply unacceptable. Plan ahead and pay your way as much as possible, if not totally.

Finally, this caveat. In these economic times it is essential to be cautious. Even many state governments are in financial trouble and their college plans may be suspect. Even the best plan can be a disaster for you if it defaults on its promises.

Conclusion: Make Saving for Education a Priority

Like every other type of savings and investment, getting started as early as possible saving for education is your key for greatest success. If you think you will need savings for education (and everyone needs skill improvement), then get started now.

And remember, the best way to save for college is the way that you determine best fits your personal circumstances, whether it is an educational savings account or other means.