Countdown to college

Kiplinger's Personal Finance Magazine, Nov, 1998 by Kimberly Lankford

Our strategies will help you jump-start your savings plan, no matter how old your kids are or how little you've saved.

There's something a little out of whack when families secretly hope that their kids won't get into the college of their dreams. But imagine the fear of two-income, middle-class parents--families who might not qualify for financial aid--with an overachieving son or daughter who wants to attend Harvard. The cost is staggering: The total for four years' tuition, room and board for this fall's freshmen is expected to top $140,000. If your Harvard-bound scholar is a newborn, expect the cost to soar 140%--to $340,000--in 18 years. The numbers are about the same for all of the top-tier, prestigious private colleges.

Even without an Ivy League education on the horizon, Glenn and Leslie Barlow are terrified. Their older son, Kyle, is 16, which means a tuition bill will be due in less than two years. After he graduates, college payments will loom for Jason, 8. Even though the Barlows have been saving to pay for college since Kyle was 5, they're sure they won't have enough. "I knew that whatever I was saving would be inadequate when they got there," says Barlow, an executive at a Dallas computer-services company.

That about sums it up for most families: The cost of college is so daunting that you may not even try to save for the full freight, particularly if you have two or three kids to send. If you start saving early, you have a shot at accumulating much of the tab--assuming that you don't raid the account to pay for a new house or a car or some emergency along the way--but it's tough to find money to sock away when the kids are young. As the college bills get closer, you may be able to save a bigger chunk of your paycheck, but demands on your budget and savings also increase: Retirement is getting closer, and you probably have a bigger mortgage and a multitude of expenses you couldn't have anticipated a decade before.

Compared with most families today, the Barlows really aren't in such bad shape. They actually have college savings set aside--about two years' worth of public-college tuition and expenses for Kyle, and one year's worth for Jason. Plus, the kids are eight years apart, so they won't have to pay two or three tuition bills at once, as many families do.

Where does that leave you? Maybe not as bad off as you think. For starters, most colleges cost way less than Harvard. The four-year tab for this fall's freshmen at private colleges averages $97,000, and at state schools, $45,000. At the University of North Carolina at Chapel Hill, which ranked first in "State Universities to Cheer About" (Sept.), in-state students who have just started their freshman year will pay about $33,000 over four years.

Second, you don't have to save for the whole thing. You'll pay less than the list price if your child receives a grant or scholarship (most freshmen receive at least one) and contributes to the cause through summer or campus jobs. And if you qualify for financial aid, you could pay the same for Harvard as you would for North Carolina. The average financial-aid package last year at Harvard for the 46% of students who were eligible for aid, including scholarships, low-interest loans and work-study programs, was more than $22,000.

It's only a myth that saving will ruin your chances of receiving financial aid. The more you save, the more options you'll have and, when the time comes, the less you'll have to tap current income or higher-interest loans. A large part of financial-aid packages is loans and work study--not free money--which makes avoiding saving a lousy strategy.

Without knowing where your kids will go, what it will cost and how much help you'll get with the bills, it's tough to set a savings goal. "There's no big secret other than to start early and, if that doesn't work, downgrade your expectations," says Marl Adam, a financial planner in Fort Lauderdale, Fla. Another realistic approach is to save at least enough to cover instate public-college costs and add more whenever you can. If you have the money invested directly from your paycheck, you won't have the chance to spend it.

Our strategies are designed to jump-start your college-savings plan, no matter how old your kids are or how much you've saved.

18 years to go

With nearly to decades to go and college inflation ticking away at 5% a year, the bills sky rocket--but the power of compounding over that time can make even the priciest schools affordable. The best strategy at this point is one that almost no one who doesn't regularly utter the words trust fund can put into action: Put aside a lump sum and watch it grow. With 18 years to invest at a total return of 10% a year, you'd need about $41,000 to finance a private-college education and about $20,000 for public college.

Almost as unrealistic as finding such a windfall is saving $330 a month uninterrupted for 18 years. Only a few superdisciplined families are able to do it. "Extra" cash is likely to be diverted to day care or a down payment on a house, or your income may drop while you stay home with the children. Solution: Invest as much as you can each month, then add lump sums when you get a raise, bonus, tax refund or gift.