Start saving for college ASAP

By: Edward Valentine - [family/parenting]
By Edward T. Valentine

My oldest daughter just turned 17. That makes her a high school junior, and means that in about a year she will be beginning college.
That, of course begs an obvious question. How in the world am I going to pay for this?
It's a question millions of parents ask themselves every year.
With the skyrocketing cost of a college education, it's a question that needs to be asked.
Current estimates show that in the 2005-2006 school year - when my daughter will start college -- the average cost of a single year of education at a four-year public school, including room and board, is expected to be more than $14,000. A private four-year school? You'll need to come up with nearly $32,000 per year.
By 2019-2020, when a child born in 2001 would likely enroll in college, the cost of a single year of college education is likely to be more than $28,000 at a public school and a staggering $63,000 annually at a private university.
So, obviously, if you think college will be part of your child's future, the sooner you start saving money for those expenses the better off you will be.
''The ideal time, in a perfect world, is when the child is one or two,'' said Crystal Langdon, a Certified Financial Planner with Crystal Clear Finances in Clifton Park. ''That way you can do $25-50 a month and it's affordable.''
If you are one of those people with a 16-or 17-year-old who will soon be entering college, financial planners say there is little you can do investment-wise to prepare for college costs.
''I don't encourage people to invest if they're going to need the money 2-3 years down the road,'' said Langdon. ''God forbid they put money in and a year later they need it and the market is down.''
You might get a slight return from a short-term CD, planners say, but any other last-minute investment is too risky. Most likely, you'll wind up paying too much in sales charges to get any real benefit, and the risk you take with an aggressive short-term investment in unlikely to be worthwhile.
''Nobody profits but the planner,'' said Langdon. ''At that point you're going to have to bite the bullet and do the best you can.''
That means looking into loans, grants, work study programs and scholarships.
By planning ahead, however, you can ease some of the pain. Just don't fool yourself into thinking you can save enough to complete cover college expenses. No matter how well you plan and how diligently you save, says MandT Securities Financial Consultant Lisa Tenent, ''Usually it's not enough. The numbers are overwhelming.''
There are, of course, myriad ways to invest money in hopes of long-term financial gain. To set aside money specifically for college, the investment of choice has become a state-sponsored 529 plan.
Every state offers at least one 529 plan. Educational institutions can also offer prepaid 529 plans, but not savings plans. New York's plan is called the New York College Savings Program, and you can find out more about the plan and how to enroll at http://nysaves.uii.upromise.com/
MandT's Tenent calls using New York's 529 plan a ''no-brainer'' because it is tax free to state residents.
''It's such a good deal,'' said Tenent. ''You are getting a tax free educational vehicle and it is definitely the best way to go.''
A 529 plan can be opened in New York with as little as $25. Investments are generally done using an age-based formula, with aggressive investments made when children are very young and the portfolio becoming more conservative as a child gets closer to college age.
Thus, the younger a child is when a 529 plan is opened, the greater the potential for earnings growth.
There is no limit to the amount that can be contributed to a 529 plan, and anyone can contribute.
''It's not just parents that contribute,'' said Tenent. ''Grandparents love 529 plans. They want to contribute to their grandchildren's education.''
Funds from a 529 plan must be used for educational expenses, and can be transferred from one family member to another if the chosen beneficiary does not attend college. The money can be used to attend school anywhere in the country, not just in New York. Be aware, however, that should you withdraw the money from a 529 plan without using it for college expenses you will pay tax on it.
Something else to know about 529 plans, points out Langdon, is that you can invest your money in a 529 plan sponsored by another state if you choose. You would lose the tax break you get by investing in New York, but should you find another state with a 529 whose performance you feel is superior it might be an option worth considering.
''You have to look at how New York's plan is doing compared to Virginia's or Florida's,'' said Langdon. ''Go with the growth.''
You can find a state-by-state comparison of 529 plans on the Web at http://www.savingforcollege.com/529plans/5capratings/index.php.
Another option when it comes to saving for educational expenses is to use an Educational or Coverdell IRA. A Coverdell only allows you to invest a maximum of $2,000 per year, but that money can be used for a variety of educational expenses, not just college. It could be used for a trade school, private school, primary education, etc.
Another type of investment you might want to consider is a Uniform Transfer to Minor Account (UTMA). This allows you to save money for a child that would be transferred to his or her control at 18 in New York. The catch with this type of account is that the beneficiary can then use the funds for anything he or she wants - such as buying a car instead of paying for college.
''Everything has a tradeoff,'' said Langdon.
In the end, the point is simple. Most parents can't write a blank check for college, and only a few get free rides on athletic or academic scholarships. So, get to a financial advisor as soon as possible and start saving.

On the Web:

http://www.savingforcollege.com/
MetLife -- http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,1674,P1870,00.html
http://www.adventuresineducation.org/
MSN Money -- http://moneycentral.msn.com/articles/family/college/contents.asp
SmartMoney.com -- http://www.smartmoney.com/college/investing/index.cfm?story=supertable1
Yahoo Finance -- http://planning.yahoo.com/c/
Baby Center -- http://www.babycenter.com/refcap/baby/babyfinance/1263733.html
http://www.finaid.org/
http://www.collegeboard.com/article/0,,6-29-0-401,00.html
Mapping Your Future -- http://www.mapping-your-future.org/
CNN Money -- http://money.cnn.com/pf/college/
http://www.invest1to1.com/invest1to1/planning/college/savings.html
Met Life cost chart -- http://www.metlife.com/Applications/Corporate/WPS/CDA/PageGenerator/0,1674,P1875,00.html

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