Saving For College
If I save money for college, I won't get financial aid.
This is perhaps the biggest myth surrounding the financial aid process. Many parents believe that having money in the bank will prevent them from receiving need based financial aid. To avoid losing aid, parents will spend money, hide money or invest money in places where even they can't touch it. Even worse, many never bother saving it in the first place. The fact is that parental savings are treated very generously in the financial aid formula.
First of all, assets such as home equity and qualified retirement plans are not reported on the financial aid forms. So don't worry about how much your home is worth or how much you have invested in retirement vehicles such as company plans, IRAs, or a 401K. For all other assets (cash, savings, checking, mutual funds, money market accounts, rental properties, etc.), an allowance is applied to protect a significant portion of your assets. In most cases, less than 5% of the total value of parental assets is included when determining eligibility for need based financial aid. And if the parents' income is less than $50,000, their assets don't count at all.
Also, keep in mind that family savings are only a factor when the student is applying for need based financial aid. Students being considered for merit based aid on the basis of academics or other factors do NOT have savings taken into account.
The principles of saving for college are the same as those for retirement or other purposes. Time and consistency are your greatest allies. Begin saving as early as elementary school or sooner and invest on a regular basis such as through automatic monthly deductions from your checking account and you will be well on your way to developing an effective college savings plan. Use our Savings Calculator to see how this strategy will allow your college savings to grow almost as quickly as your child will!
When it comes to paying for the cost of college, it is always better to have money in the bank than to not have money in the bank. In most cases, savings will not have an impact on financial aid eligibility. Plus, having a college savings fund will give you options, it could reduce student and parent borrowing, it could reduce the student's work obligation while going to school, and it could make it possible for your child to attend the school of his or her choice. In short, saving for college can help ease your mind when it comes to paying for your child's education.
There is just one catch, your child is not getting any younger! The clock is ticking, so start your college saving plan today.
Parents Help Continued...
"An investment in knowledge always pays the best interest. ~Benjamin Franklin"
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