Invested in Learning
Financing options abound for funding the college experience
by Bill Donahue

The gift of knowledge, although invaluable, bears a hefty price tag for many families. Considering the mounting costs of tuition, as well as service fees, housing, meals, etc., a “moderate” college budget for an in-state public college averaged $23,410 for the 2014-2015 academic year—$46,272 for a moderate private college—according to the College Board, a New York-based nonprofit created to expand access to higher education.

“It’s going to be an expensive bill,” in the words of Richard J. Massaux, managing director of the Parker Massaux Investment Group of Wells Fargo Advisors in Philadelphia. He suggests families get an early start. Among the most versatile strategies is a 529 plan, which is a tax-advantaged investment vehicle designed specifically to help families set aside funds for future college costs. All withdrawals from 529 plans for “qualified education expenses” remain free from federal income tax, and most plans have low minimum monthly contribution limits, thereby making them attractive to families of all income levels.

“Some of the bigger benefits [of 529 plans] are that you can change the beneficiary at any time, and the growth is tax free as long as it’s used for anything tied to the college experience,” says Massaux, who created a 529 in his own name and then changed the beneficiary when the first of his three children was born. “The money can also be used for post-graduate study, so it never goes to waste.”

Even a parent who has hasn’t devoted sufficient time to saving for a child’s college education has options available, according to Massaux.

“It really comes down to understanding your personal financial plan,” he says. “Start saving and putting some money aside immediately, and do your due diligence to find out what else is out there—grants, scholarships, financial aid.

People shouldn’t assume that income and assets will disqualify them [from these options]. … Once you know you much assistance you’re going to get, you can satisfy the rest with loans.”

Regardless of how a parent chooses to help fund a child’s college experience, one should be careful to not derail his or her own retirement plan in the process. In other words, before dipping into taxable savings or borrowing from a 401(k) plan, investigate other options—and assets—first.

“Taking money out of retirement is probably the worst thing someone could do,” he says. “If a child’s first choice is an expensive college, they might need to take a look at a public community school for a year or two where they can earn a lot of credits at a lower cost.”

Massaux’s best advice: Don’t procrastinate. “It’s easier to look at how you’re going to pay for your child’s [college] education years and say, ‘We’ll figure it out later,’ but ‘later’ comes all too quickly.”

Photograph courtesy of Princeton University, Office of Communications