While I’m certain that all three of my children will be gifted athletes and fall in the 1% of kids that earn full athletic scholarships to the school of their choice, I’m also thinking I may need a back up plan. You know, just in case. I don’t know what’s more troubling, the fact that kids with 4.6 GPA’s can’t get into colleges or that they are being saddled with massive amounts of debt once they do. According to Forbes, the cost of tuition is increasing at 8 times the rate of wages. I was not a math major, but I don’ think that pencils out well. It’s no wonder that as a nation, we are now facing 1.4 billion dollars in student loan debt. Yikes. I am also not a financial expert. I am mom with three little ones that I hope will attend college one day. This makes me invested. Pun intended. Unless you are uber wealthy or have a college-paying fairy up your sleeve, most people will need the time value of money to work it’s compound-interest-magic in order to keep up. Also known as: saving. Saving for college is often done via a 529 account. Click here for a super easy college savings calculator.

What is a 529?

Very simply put, a 529 plan is specialized savings account that is used to save money for education. The money invested in a 529 account can be used for qualified education expenses (NOT just college!)

At the college or graduate level, funds from a 529 plan can be used for tuition, fees, books, supplies, approved study equipment, and room and board for a full-time student at an accredited institution.

The tax advantages of a 529 plan are that earnings grow federal income tax-deferred and withdrawals used for qualified education expenses are free from federal income taxes and, in many cases, state taxes.

Source: Fidelity

Things to look for in a plan:

Pick a plan that allows you to choose the funds you invest in through the account and that does not control or automate your investments.
Pick a plan that allows you to change the beneficiary to another family member in the event the primary child does not use it.
Be sure to read and understand all the rules and penalties associated with your plan. 529 plans will charge a major penalty for cashing out money for unqualified expenses.
Get started as soon as possible and keep it simple. Dave Ramsey outlines an easy to understand game plan to start the college savings process.

Should everyone with college hopefuls be contributing to a 529 plan?

No. If you have consumer debt of your own, that should be paid off first. While it’s always best to start saving as soon as possible, don’t ignore your own debt in order to save for your kids college. Remember, you can’t take out a loan for retirement . But you can find other means to pay for college via scholarships, grants or work/pay-as-you-go options. If you have consumer debt, that should be paid that off as quickly as possible and then begin to save for your retirement and college. Dave Ramsey has steps he lays out that are easy to follow and help keep people out of trouble. He also warns against pre-paid tuition products or state-run 529 plans. This is where the threat of rising costs and inflation are used as a carrot for this type of college savings account. While they do hedge against inflation, they should not outpace your investment rate. I am not expert here so I will link to his article here.

Other things to consider:

In-state colleges.

Tuition is typically cheaper in-state than out-of-state tuition. Like a lot. Possibly a life-changing amount. Duh. However, most kids (and by that, I mean 18-year-olds) do not realize what it means to be saddled with debt for decades after they graduate, or worse, don’t graduate. As parents we need to educate ourselves and our children on the long-term consequences of these choices. And yes, they are choices.

Community College

I’m not here to kill dreams, but the reality is that going to a community college for two years for general education requirements and then transferring to a four-year university may be the prudent thing to do in a given situation. My husband did it and got a degree from a major 4-year university. The degree is what goes on the resume. If anything, it’s a story to tell of hard work and perseverance.

Apply for scholarships!

And no, I don’t mean a football scholarship. There are tons of scholarships awarded every year to thousands of kids based on a wide range of backgrounds and experiences. Check out Anthony Oneal’s scholarship search tool.

Gosh that can get stale quick. Thanks for hanging in there. Again, I’m not a finance professional. My goal here is to get the conversation started with other moms who might not otherwise be inclined or perhaps defer this “stuff” to a spouse. It’s always good to be partner in these decisions. If it’s just a review, thanks for reading and I’d love to hear your feedback. Per usual, thank you for checking in and always feel free to chime in for discussion. That’s what this is alllllll about.