Making Tough Decisions
Whether a parent chooses to pay for a child’s college education is largely a personal decision. But perhaps the bigger question is what can you really afford to pay? Tuition and fees at private, nonprofit, four-year colleges and universities averaged $28,500 per year in the 2011—2012 school year, reports the College Board. In addition to being on track to have enough money saved for retirement, a three-month emergency fund should also take priority over saving for college, says Ivory Johnson, founder of Delancey Wealth Management L.L.C. in Washington, D.C. “People tie all their money up in retirement and college savings and then there’s a bump in the road and they find themselves drawing money out and incurring expensive tax consequences.†Taking out a home equity loan to pay for tuition should also be avoided, Johnson adds.
Once your basics are covered–living expenses, emergency fund, and retirement–you can start diverting extra money to your child’s education without sacrificing your own financial stability. Instead of aiming to save $100,000 for your child’s college education, it may be easier if you break it down and save a portion of that goal. For example, you may plan to save $25,000, or 25%–enough to pay for one year–and look to scholarships and loans to make up the rest.
Ronda Liggins always knew she’d do whatever it took to make sure her son, Alex Borden, attended college. “I just want to help him beat the odds,†the 53-year-old Philadelphia mother says. Since Liggins can’t afford to pay nearly $20,000 per year for tuition at Howard University, where Borden is a junior and business finance major, she and Borden have taken a multistrategy approach to paying for college. Borden applied for every scholarship and grant he could find, amassing nearly $20,000 thus far in grants, but mostly from federal and private student loans. Liggins has also chipped in nearly $10,000 in personal savings.
Though the single mother would love to fund more of Borden’s education, “I personally don’t know a whole lot of people that have that kind of money,†she says. “You’re trying to pay your current bills and people aren’t getting paid enormous salaries.â€
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