College savings strategies for parents of older children

Consumers Union
May 2009

Parents of adolescents or teenagers have fewer options and need a more conservative savings strategy.

If your kids are 11 or older, your main concern should not be to make more money through investments but simply to protect whatever you can save. You may still use a 529 plan (see For parents of younger children), but make sure you choose the age-adjusted portfolio or very conservative investment options like those discussed in Safest places for your cash. Here are other tips:

Seek government financial aid
Education loans come in three major categories: student loans, such as the Stafford and Perkins; parent loans (PLUS); and private student loans. Stafford and Perkins are government-subsidized, and we suggest you chase those first. “All too often, people choose a commercial lender because it is convenient,” says financial planner Lee Munson, chief investment officer at Portfolio, a financial-planning company in Albuquerque, N.M. “But rates are better when they’re subsidized.” If you aren’t offered enough aid, make an appointment with the school’s financial-aid officer to appeal. Bring documentation to show why you need more money. In the current market, schools want to keep enrollments high and so they might improve the offer. But also make sure the size of the loan doesn’t exceed your child’s expected earning potential. If your child is headed toward a medical career, for example, he or she can more easily pay back a big debt than a child who becomes a teacher. And look into getting a scholarship or grant; your child’s guidance or college counselor or the college’s financial-aid office can help.

Encourage an accelerated route through college

Another way to cut down on college costs is to spend less time in college. Katherine Cohen, founder and CEO of IvyWise, an educational consulting company, advises students to take advanced-placement courses in high school and local college courses over the summer to build up additional credits. Students should also take the maximum course load each semester at college. Graduating in three years can cut the cost by up to 25 percent, obviously. Another option is to attend an inexpensive community college for two years and transfer to a higher-priced four-year school. Cohen says the trick is to be sure to load up on transferable required courses at the community college.

Reconsider those prepaid-tuition 529 plans
In the past, parents sometimes overlooked such plans because they limit students to state schools and offer little in the way of investment returns. But in today’s market, they’re more attractive. “Since these plans allow you to buy future tuition in today’s dollars, your rate of return is essentially the amount tuition is expected to increase,” says Ken Clark, author of “The Complete Idiot’s Guide to Getting Out of Debt.” “Where else can you find a two- to three-year savings option that’s expected to pay the equivalent of at least 5 to 6 percent?”

Last, don’t let your zeal for funding college blind you to your own needs. “There are loans for students to go to college, but there are no retirement loans,” Munson says. “So take care of yourself first, or risk being a future burden on your children.” For more on this subject, see Cutting the purse strings.

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