Confused Over How To Save For College? Here Are Answers For the vast majority of people, says one expert, it's good to save in a 529 plan. And no, saving money in one of those plans doesn't mean you'll pay a lot more for college tuition.
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Confused Over How To Save For College? Here Are Answers

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Confused Over How To Save For College? Here Are Answers

Confused Over How To Save For College? Here Are Answers

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ROBERT SIEGEL, HOST:

If you're a parent, there's a lot to worry about, like the rising cost of college. Some of you may have started saving early, but you might wonder about this - if you put money in a college savings plan, does that mean that your child will have a harder time qualifying for financial aid? In effect, do you get punished for saving? NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: Many American parents face a tug of war - trying to save enough for retirement versus trying to save for college.

LISA CAREY: My mental calculus was to put my head in the sand, but I now have a seventh-grader, so I can't do that any longer.

ARNOLD: That's Lisa Carey. She's a 44-year-old high school history teacher in Tampa, Fla. Her husband's a minister. They have three kids. And she joined our new NPR Your Money and Your Life Facebook group. Like many parents in the group, she's wondering - what's the best way to save for college?

CAREY: I find it a struggle to save, really, much at all. I think we're doing decently well with retirement because I have a 403(b) through the school, and I'm good about contributing the maximum that they will match. But we haven't started saving for our kids' college education, which sounds terrible.

ARNOLD: But actually, Carey's doing something right. If your employer offers to match money that you put into your retirement plan, you just absolutely have to do that. It's the No. 1 most important thing. Scott Weingold is a financial advisor who specializes in planning for college.

SCOTT WEINGOLD: You should always contribute up to your match because that's, you know, free money.

ARNOLD: OK, so that's the simple part. But beyond that, are you better off putting everything that you can afford into retirement savings, or should a chunk of that money going into one of those 529 college savings plans? People wonder whether having money set aside for college like that hurts the family's chance for financial aid.

MARK KANTROWITZ: Oftentimes you hear conventional wisdom that you should save only for retirement and not save for college.

ARNOLD: Mark Kantrowitz writes books on how to pay for college, and he says, for the vast majority people, it is good to save in a 529 plan.

KANTROWITZ: You will end up with more money for retirement if you save for college in addition to saving for retirement instead of saving just for retirement.

ARNOLD: That's because, he says, if you don't set aside money for college, you or your kids will have to borrow more money. The interest on that can get expensive. Or you'll have to pull money out of retirement savings, which is also costly. And many people do not understand this key point - saving money in a 529 college plan does mean that colleges expect you to pay more for tuition, but not very much more.

SANDY BAUM: You're better off saving the money.

ARNOLD: Sandy Baum is a higher education economist with George Washington University. She says, when it comes to the amount a college expects a family to pay for tuition, the parents' income level counts up to eight times more than an asset like the money in a college savings plan. So...

BAUM: ...Save the money. Even if it's considered as an asset, the amount that it would reduce your aid is minimal compared to the benefit you'll get from having saved that money.

ARNOLD: At the end of the day, most parents will have to use a mix of resources - a 529 plan, some home equity, some student loans. But the takeaway here is that it's a good idea to sock away a bunch of money in a 529 plan. Again...

BAUM: You're better off saving the money.

ARNOLD: Plus, if you have a 529 plan, you might be more likely to get grandparents to chip in with some extra money. And there are websites now that you can use with kids' birthday parties where you can say, hey, instead of buying us more plastic toys and junk, please put $25 in our college fund. Chris Arnold, NPR News.

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