Saving for college: Whatever you do, don't wait
Janet and Karl Beisler have been putting money into the Pennsylvania Tuition Account Program for college for their children, Brooke, 8, and Dylan, 6, since Brooke was a baby.
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When Janet Beisler's daughter, Brooke, was born eight years ago, she started setting aside $25 a month to save for college tuition. Since then, every time she's gotten a raise, she's sent that money straight to college savings.
She's now saving $100 a month for her daughter and $100 a month for her 6-year-old son, Dylan.
"I have an associate's degree, and I would have liked to have something more," said Ms. Beisler of Glassport. "I'm very adamant that they will go to college, and I want them to have a degree without being burdened."
It is exactly what experts recommend that parents do to save for their children's education. But with skyrocketing tuition costs and a dreary economy, saving and paying for college is something that's getting harder and harder.
"College has become much less affordable recently," said Mark Kantrowitz, publisher of the Cranberry-based FinAid.org and FastWeb.com. Even for those who have been saving, "incomes have been stagnant for a decade and stock market performance has not been all that great -- you expect there would be economic downtowns, but this is much more severe."
After the stock market crash of 2008, one-third of parents who were contributing to college savings plans stopped doing so. Another tenth decreased their contributions, according to a survey from FastWeb.com.
To make up the difference between what people have saved and what college costs, Americans have turned en masse to student loans. Nearly 1 in 5 households have college debt -- a 15 percent increase from 2007, according to a study last month from the Pew Research Center.
Ms. Beisler, who works in payroll in the South Allegheny School District, sees new teachers at the school who have just graduated "up to their eyeballs in debt."
She knows that it's difficult for people to put away money, but she tries to talk to her colleagues about the importance of saving for their children.
"They know the cost of it and that it's not going to go away," she said. "Most of the people I know are not saving -- they're just pushing the envelope down the road, saddling their kids with the debt."
At public four-year universities, tuition and fees have risen about 150 percent since 1990, according to the College Board.
Ms. Beisler saves using Pennsylvania's guaranteed savings plan program, through which she actually purchases credits at Pennsylvania colleges. In the time she has been saving, she has seen the cost of a credit rise from less than $400 to about $600.
"At the rate they're going right now, it could be $2,000 a credit," she said.
One rule of thumb for calculating college costs, Mr. Kantrowitz said, is that by the time a child is ready for college, tuition will be triple what it cost when that child was a newborn. The goal should be to save up for about a third of what college eventually will cost, assuming the rest will be covered by investment growth and loans. So parents saving for college should aim to save up for what college costs today.
In today's dollars, that equates to $250 per month if parents are aiming to send their child to a state school and $500 per month for a four-year private school.
Figures for college costs today can be found at the College Navigator at the National Center for Education Statistics -- nces.ed.gov/collegenavigator. Mr. Kantrowitz suggests comparing the cost of different colleges by net price, which is what a family actually pays after school and government grants are taken into account, instead of by net costs, which is the "sticker" price of a college.
He recommends doing just what Ms. Beisler has done: starting small, then adding to college savings whenever possible. When your child finishes using diapers, use that money for college savings, he said. If they go from day care to public school, use that money, too.
He also recommends using a 529 savings plan. Such plans are set up by states to allow for tax-exempt college savings and offer two options: one provides investment accounts and the other allows for the direct purchase of college credits. In Pennsylvania, contributions to 529 plans -- even plans in other states -- are deductible from state taxes.
While those saving for college do not have to use Pennsylvania's plan, Mr. Kantrowitz said it has several positive features, including partnerships with the Vanguard investment management company and Upromise, a program that allows credit card users to put a percentage of purchases they make using their cards into 529 accounts.
But if it comes time for children to enter college and parents have saved very little, there are other ways to pay for higher education.
David Hone, a senior at Indiana University of Pennsylvania, has been busy unearthing those other ways. A 41-year-old Army veteran, he is using a combination of loans, government programs and scholarships to fund his education.
Mr. Hone, originally from Dawson in Fayette County, injured his knee in the Army and worked at several jobs afterward, including four years at 84 Lumber. When his knee started to bother him, he went to a state CareerLink office, where he found out about a vocational rehab program that pays tuition and fees for disabled veterans.
He enrolled at IUP almost immediately and found several avenues to help generate income to pay for school as well as support his wife and daughter.
He works at the state CareerLink office as part of the federal work study program. He's secured scholarships through AmeriCorps (that requires hundreds of hours of volunteer time) and through the school. He's receiving a Pell Grant and state grants, and he's taken out student loans.
Researching all of the available avenues for college financing hasn't been easy. "When I first started, it was difficult," he said. "You don't know who to talk to, who to go to. It's not like it's readily available, just laying out somewhere to find."
And even with multiple funding sources, economic factors have caused unexpected difficulties. Mr. Hone recently moved to Indiana, Pa., after gas prices made his commute from Latrobe unsustainable. His federal scholarship also was decreased last year.
"The economy has made things a whole heck of lot more difficult," he said. "You have to go out and find more money, find more scholarships to bring in money for the family."
Mr. Kantrowitz offers a few pieces of advice for students fully or partially paying their way through college.
He recommends working -- but not too much. "Anything 12 hours or less improves skills, but anything that's a full-time job cuts the graduation rate in half," he said. "Parents could take on a second job but not the students."
He cautioned students about being frugal with borrowed money. A $10 pizza per week would cost $2,000 over four years, he said, which would turn into $4,000 after paying interest on a student loan.
"You can live like a student when you're in school so you don't have to live like a student after you graduate," he said.
Andrew Jaros, a 26-year-old IUP student from New Brighton, is trying to follow that advice. He's funding his education through a 25-hour-per-week work-study job, state and federal grants, and federal loans.
In the years when he was working before college, he went to restaurants and ate fast food. Now, he tries to live frugally, cooking his own meals in a crockpot.
Including a previous year at Penn State Behrend, he's racked up a little more than $20,000 in student loans. It's a bet that he's willing to take.
"I'm optimistic about the future and I hope that I'm not being deluded," he said. "I'm building toward something that I think will benefit me long time. I like to think it's going to be worth the debt."
First Published October 11, 2012 12:00 am