Saving for College Should Get Top Priority - Brief Article

USA Today (Society for the Advancement of Education), August, 1999

The situation is frustrating, but Julia Perreault, director of financial aid at Emory University, Atlanta, Ga., sees it all the time. Parents who have saved money faithfully for their offspring's college education find out that another family, with the same annual income but no savings, is eligible for more financial aid than they are, evidence of the savings disincentive built into the current system.

In response, the College Board and college aid administrators have developed a better method of assessing a family's ability to pay, she explains. In the 2000-01 academic year, the formula used to calculate need-based aid will take into account families' need to save to finance their expected contributions for college. This change in methodology is designed to prevent a family from being penalized after saving conscientiously for college.

Savings incentives have become a higher priority for legislators as well, Perreault notes. The Education IRA permits a contribution of up to $500 toward educational expenses of a child 18 or younger. Although the contribution is not tax-deductible, amounts deposited in the accounts grow tax-free until they are withdrawn. The system must change to encourage more parents to save, she adds, because "paying for college is primarily the family's responsibility." She lists several reasons for saving now, whatever your child's age: * Parents often underestimate the cost of college. "Many parents think they are going to pay for it out of current income. They don't think of college as a long-term investment." Perreault urges families to start planning when their offspring are newborns by investigating any tax-deferred savings plans or prepaid tuition plans available to them.

* Tuition increases might have slowed in recent years, but room-and-board keeps rising.

* Saving in advance can help keep your options open. "You never know which schools your children will want to attend, whether more affordable schools will offer what they want to study, or how well they will do in college." A recent study showed that three out of four students lost their scholarship eligibility after their freshman year for not maintaining the required 3.0 grade point average. Perreault also advises parents to look at tuition prepayment or state savings plans closely to find out if there is a penalty if their son or daughter opts not to attend college after all.