<p>My financial advisor recently told me not to save for college for my children. They are 7 and 9. I have always been told to save as much as possible for them because I value education greatly. However my advisor says I should focus on retirement. Because are income is below 60k he says we are better off just saving for our retirement and not to worry about their college. That it will be taken care of my financial aid, grants, etc. Please can someone tell me if this is true?</p>
<p>That it will be taken care of my financial aid, grants, etc. Please can someone tell me if this is true?</p>
<p>In most cases…no.</p>
<p>Most colleges can’t afford to do that.</p>
<p>See [Saving</a> for Retirement Versus College Education Costs](<a href=“Saving for Retirement Versus College Education Costs”>Saving for Retirement Versus College Education Costs)
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<p>Your first priority should be retirement - your advisor is correct about that. As the flight attendants would say, put that oxygen mask on yourself first before assisting other passengers.</p>
<p>However, if you have money left over, put some of it away for college (529 plan, CDs, savings account, shoe box under the bed, all can work for you). Think of it this way: If what you have saved by the time your kids go to college is enough to cover the difference between the cost of your local community college and a cheap commuting-distance public university, that savings will give them a choice between the community college and the 4-year university. </p>
<p>Not to mention of course that the financial advisor you spoke with might get bigger commissions from selling you on those retirement plans than from steering you toward a financial program that includes formal saving for college.</p>
<p>I’m not going to give much advice about how you should be doing your financial planning since your planner does have the details of what you make, your assets, etc. I will say, that getting an early start on retiremnt planning, especially since it can be done on a tax favorable basis if you work for an employer with 401K or other plans, and may even give you matches based on your contributions, is a good way to go. You can often borrow against retirement funds for college but you can’t do the same for college funds. </p>
<p>However your planner is WRONG in saying that your kids’ college costs WILL BE covered by financial aid, grants, etc, unless that ETC includes your borrowing or hitting the lottery or your own savings. Take a look at the FInancial AID basics and questions on this board to get a good idea of how things are right now. </p>
<p>The way it works in this country, is that it is primarily up to parents to provide most of the financial support during college. For those families close to to poverty level, the federal government has PELL grants that max out at $5600 these days and that’s with a zero EFC (Expected Family Contribution). Your kid can also borrow up to $3500 the first year with interest not accruing as long as he is a full time students. He can also borrow another $2K with no subsidization of interest. That’s all that’s guaranteed and you can see that it does not cover going to a sleep away college. If you have a local state school or community college, and the kid commutes to go there, those entitlement will cover all or a good part of the cost. It can still be an issue if there isn’t ready and inexpensive public transportation to such schools. Look up what your state flagships cost and you can see the gap right there.</p>
<p>Most aid comes for the schools beyond that ,and very few, like hardly any meet full need for anyone, and those that do, define need themselves. Meeting need also means self help like work study jobs and loans. Parent loans these days (and you have to qualify for them) through Direct Loans have about an 8% interest rate with the meter ticking the moment the funds are released. Not exactly a bargain. Scholarships are hard to get. The average college student in this country goes to school part time, works full or part time and lives with family, not on campus the way some people seem to think the typical college scene is. </p>
<p>I suggest having your kids start saving for college in that any checks for birthdays, or earning a few bucks go into the piggy banks, then to an account so that they understand that they too need to put some money away. If the way things work remain the same in 8 or 9 years when your oldest is of age for college, make sure that money is put into some joint account with your name first as student savings are hit up at a higher rate than parental. But even $2K in an account at that time can provide a buffer, and help out. College should be paid for by past, present, and future earnings, both on the part of the parents and students, IMO, in families where the money isn’t right there to pay for the whole ride. </p>
<p>But providing for your pension is also a form of college planning too. Get as much in there , early so the effects of compound interest and good investment have time on their side. When the kids are in college, some folks cut down or eliminate pension contributions and use some of that to pay for the college, something that fin planners might say is not the way to go, but an option nonetheless At least if you are used to not living on that money it won’t hurt as much to use it. Tightening the belt is really difficult especially since we parents tend to put our money in things that cost money for a long time, like choice of homes. Can’t just cut away so easily from that expense.</p>
<p>I certainly can’t advise you what to do. The landscape of need based financial aid is likely to change by the time your kids go to college. In addition, it is highly likely your income will be more than $60,000 a year by the time your kids go to college. Also, if this is a one parent income family, it is possible that the second parent will also be working in nine years or so when the first kiddo goes,to college.</p>
<p>That being said…we were advised to fund our retirement as much as possible and certainly any amount that was able to be matched by an employer. The theory was that we should get as much in those retirement accounts as possible. Then IF we needed to cut back and use our contributions to fund college, at least there would still be a good amount earning interest in the accounts.</p>
<p>This is a personal family decision. I’m not advocating that anyone do what we did, even though it worked for us. YMMV.</p>
<p>We certainly do not have any details of the conversations you have had with your adviser. I agree with the posts above me. If I were the OP I would think about continuing with this adviser. For us paying for college was our third largest money financial commitment (house, retirement, college) … having an adviser who does not understand such an important financial topic makes me wonder how well s/he understands the other topics.</p>
<p>Yes, to the above that your income will likely increase by the time your kids go to college. And, Yes, to the above that if your income is from only one full time worker (or one full time/one part time) that that may differ later.</p>
<p>And, yes to funding retirement first.</p>
<p>But, the fact remains that MOST schools do NOT have the money to fund your child’s education no matter how much “need” you have. Your child/children may not end up with the test scores/GPA to get into the TOP schools that meet need…and those are hard to get into even with the right stats. </p>
<p>That said, with your current income, how much could you save each year anyway? Why not save whatever that amount is towards “family savings” for your own possible “rainy days”?</p>
<p>It seems most financial advisors have no idea how financial aid/college funding works.</p>
<p>Our financial planner sure does. Of course for him and for us it was simple: write a check.</p>
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<p>I think this says it all very, very well.</p>
<p>OP, it is such a balancing act when you are trying to raise a family. You want the best opportunities, experiences, best neighborhoods, school districts, etc when at the same time you need to balance the cost. We’ve personally been going through this for over 30 years and I was just on the phone with my brother who has young kids about this. Private school now vs saving for college later? Music lessons? What ECs, what experiences, what about buying a home? Never enough money to do it all. </p>
<p>I desperatately wanted to provide the best education for all of my children at any cost. From nursery school through college. I wanted them to be able to go to any private school that would accept them. But though we did save, and we make high incomes, we couldn’t quite get there. Costs were too high, and we wanted too many amenities in terms of how we live every day. A smaller house, a less convenient commute, a not so good school district, no private school, fewer costly ECS, not as many cultural or just fun experiences, would have taken us a lot closer to our goal. A lot of other things too. So we tried to do it all , and we are falling somewhat short of what we wanted in every direction and that is how it just is going to be. </p>
<p>We are fortunate to make enough not to qualify for any financial aid,. Our youngest is a wonderful student who is truly what most anyone would want. But doubtful his test scores are going to net him huge scholarships. And private school is $60K+ a year. We are older parents now and to take out loans at this point just as we are getting done with loans we took out for our oldest is not a wise finanical move. Our last two kid, we limited college costs to $35K a year, and yes, it hurt me to do this even though this puts them in such a privileged class. Yes, I am spoiled. They found schools they liked on that amount and we are managing.</p>
<p>My one in college now put his nose up at a local school that did offer him free tuition. The idea of commuting was not in the picture. But now he knows a lot of kids who have done just that at that school and are doing just fine, thank you, and having a great social life too. He now looks at it as a perfectl fine option. So there are many perspectives out there to which we all don’t have at any given time. </p>
<p>My suggestion is for you to have your kids save half of whatever monies they get or earn, and they look for summer jobs and other positions. Also if you can save a bit each week in a jar, and put it towards their accounts, match them, even that little nest egg can add up to be help.</p>
<p>Parents get a protection allowance for assets, retirement money is not generally considered as assets, and anything over the protection allowance is hit at 5.6%, so saving money for college does not seriously affect your fin aid most of the time. What you may lose in aid, one often gains in flexibility as most schools don’t meet need anyways.</p>
<p>It is highly unlikely that you’ll pay nothing for your children to go to college. So you’ll have to come up with money from somewhere. You’ll be happy for every dollar that you’ve saved, because it is less you’ll have to take out of current income or to take out in loans.</p>
<p>If your financial counselor is telling you that you can’t afford to contribute to your children’s college, that is, you will not have enough money for retirement if you do, then you do have a difficult decision to make. </p>
<p>Our financial planner told us exactly that. We saved money for college anyway, and I have no regrets.</p>
<p>You need to see if you agree with your advisor’s underlying assumptions, how much money you will need on a monthly/annual basis in retirement - your expenses and your income from all sources. Make sure you agree with the numbers and the rate of return on investments. My experience has been that they tend of overestimate how much money you need to save for retirement, as well as exaggerate the rate of return. </p>
<p>It may sound jaded, but do check to see how your advisor is compensated. If they are commission based maybe you should talk to someone who works on a fee only basis.</p>
<p>But I would save, save, save. It will be meaningful as education is a priority for you.</p>
<p>As stated above, a family’s first savings priority should be to build up an emergency fund that is maintained in a way that it can be easily tapped if needed. Your second financial priority should be your retirement, especially to take advantage of any match provided by your employer and tax deductions. However, college savings should be closely behind as a third priority.</p>
<p>The vast majority of colleges do not meet 100% of financial need. Of those that do, most are extremely selective in admissions. Some colleges that meet 100% of need are need-aware - meaning that they limit the number of students they admit who have high need. </p>
<p>While some public colleges meet 100% need of in-state students, only 2 meet 100% of need of out of state US students. Therefore, savings can be valuable to open up opportunities to also go to out of state public universities.</p>
<p>Many colleges skew their admissions and merit aid processes to try to maximize the number of students who can pay full or close to full tuition.</p>
<p>Most of the colleges that meet 100% of need expect students to take out a full allotment of federal loans and do work study jobs. If your savings can avoid the need for a student to do work study during the school year, that can open up many academic, internship and social opportunities. </p>
<p>Your savings can also keep loan amounts manageable, and avoid the need for high interest rate loans.</p>
<p>Is the advisor trying to arb the financial aid system? Clearly, any money saved for college reduces the potential need-based aid. I would assume that’s less true for retirement savings.</p>
<p>The thing that concerns me about this advisor, and this is something I’ve seen with counselors, and magazine articles, commentaries , is the impression that there is going to be the money out there, so don’t worry about it. They don’t explain that the money that will be out there may likely cover the student commuting to a local state school or community college, but that the likelihood of grants heavily covering sleep away and private options is small. Very small. A lot of parents are shocked when they learn this. </p>
<p>My son was known for his musical theater, music and performance skills in high school, and so many people predicted he’d get scholarships galore for his talents. And they were right. But those scholarships averaged $500-5000 each towards tuitions up to $50K a year, a veritable drop in the bucket. We </p>
<p>My cousin was told that her son would get all kinds of financial aid right up until she wanted to see that money. Didn’t quite work that way. Unless he went to a local state school, it was going to cost the family more than what they could pay out of current income. Even then, it would not be cheap if he had to commute, as a car purchase would probably have been necessary, as both parents need their cars, and there isn’t much in the way of public transportation. That was a killer for my hairdresser–had to get a car for her kid to work and commute, had a second kid that headed off to community college two years later and really another car was needed. Insurance costs, maintenance and gas, not to mention issues with cars and young adult make that a very costly proposition. So even commuting to the local CC is not always that inexpensive.</p>