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How
to pay for your child's college education
Dollars
for college
Editor’s note: Randy
Barton (president/CEO, Assemblies of God Financial Services Group),
Kathy White (director of financial aid, Evangel University), and
Dayton Kingsriter (director, Assemblies of God Christian Higher
Education Department) spoke recently about ways parents can pay
for their child’s education.
PE: When should parents
start saving for their child’s education?
BARTON: The obvious
answer is the sooner the better. Realistically, for young families,
it is difficult to save for a college education. I recommend allocating
a portion of your income, which might be currently targeted for
a retirement account, into a savings program for college education.
The earlier you start, the less it costs you later.
WHITE: Because
of the current and projected costs of an education, parents almost
need to start saving as soon as a child is born. Unfortunately,
we’re finding that a lot of parents are not saving. Even a
small saving’s plan that’s started early would grow and
help toward college. An 18-year savings game plan would [underwrite]
part, if not all, the cost.
KINGSRITER: Start
saving as soon as possible. In a practical sense, I’d say if
you wait much past elementary school it’s going to be pretty
hard to catch up because it’s taking more these days to attend
college. But college is not a cost; it’s an investment. The
question is how soon are you going to invest in your child’s
college education?
PE: How much should parents
expect to need for their child’s education?
BARTON: College
tuition, room and board, books and fees usually range from $10,000
to $30,000 per year. For most families, it would be difficult to
save $80,000 for each child to cover four years of college. I suggest
a simple formula, where parents contribute one-fourth, your son
or daughter works to pay for one-fourth, one-fourth hopefully is
covered by scholarships, and one-fourth is covered by student loans.
WHITE: About $15,000
a year is needed for a school like Evangel University. But that
is minimal when you consider most private colleges and universities
start at $20,000 or $25,000. One thing to consider in planning for
the future, however, is that college costs at some institutions
are going up at a rate of 3 to 5 percent a year.
KINGSRITER: About
$15,000 per year is the current average cost to attend an A/G regionally
accredited college. In some cases state schools can be less because
they’re subsidized by state funds. And then you have inflationary
factors as well. College can be expensive, but again, if you don’t
make the investment it could end up [limiting] your child’s
earning power for years to come. One study says that a college education
can increase a person’s earning power by $1 million over a
person’s lifetime.
PE: What are other options
to funding your child’s education?
BARTON: Here are
four options:
Education IRA —
Beginning in 2002, you can set aside up to $2,000 per year (increased
from $500) in an education IRA. The contribution is not tax deductible,
but the money accumulates tax-free and is withdrawn tax-free.
529 Plans — Under
newly enacted federal laws, 529 Plans are clearly the best way to
save for college. The plans grow tax-free, and distributions are
completely tax-free when used for college education expenses. Unlike
the education IRA, there are no income limits, and you could contribute
as much as $100,000 in a single year without any gift tax consequences
(a good way for grandparents to help). Unlike custodial accounts,
the donor remains in control of the funds and can change the beneficiaries.
You can move the funds among different family members or relatives.
If the funds aren’t used for college, the parent or grandparent
can get the money back by paying a 10% penalty and tax on the fund’s
earnings. Many states also provide some form of state income tax
deduction or even credit if they contribute to a particular state
529 Plan.
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