<p>Our planned sources for paying for college is as follows:
1/3 from 529
1/3 from other savings and scholarships
1/3 from parent loans</p>
<p>Our initial plan was first to utilize the proportional fraction of funds from each source per year throughout the four years.
But, currently 1/3 of 529 funds have shrunk to 1/4 equivalent due to market fluctuations. Therefore, I am thinking about new strategies and one of which includes -withdrawing 529 money towards the end (perhaps junior or senior year) and using more money from parent loans now for the freshman and sophomore years.</p>
<p>Would this be a good strategy?
Anyone else is trying to cope with shrinking 529 money?
I read somewhere that it is better to use savings first and then borrow.</p>
<p>Probably just me, but I find your question difficult to answer. I presume you already have a school in mind, and that you're certain the student can complete his/her studies in exactly four years, and that you're sure there won't be extra costs like study abroad, and that the student is unwilling to reduce family costs via ROTC or summer work or being an RA, etc. That's a lot of presumption IMHO.</p>
<p>Haven't had to do loans yet (thank goodness)--but my impression was that loans to the kids are cheaper than loans to the parent. I would have kid take out the max government loans (even if you pay them off).</p>
<p>One thing about using investments to pay for school...any money that you will need within the next 2 years should be in cash or a cash equivalent. You do not want to be caught on the wrong end of a downturn, even if it means missing out on gains.</p>
<p>Many parents pay for college using a multitude of different sources of funds...loans, savings, investments, cash flow, home equity. You didn't mention whether you could contribute some from your current cash flow.</p>
<p>How many years before 1st kid starts college?</p>
<p>Ijmom, I hear you. Just read our college fund report & noticed that last cycle lost money, too. Unfortunate! I'm also thinking about various strategies.</p>
<p>I'm sort of the reverse...thinking we'll use large chunk of 529 money just to get son into school. Then the plan is I'll start working fulltime and we'll have $$ to pay the (of necessity, big) loans shortly after they are taken out. Plus, hopefully son will do co-op and have decent 'real' summer jobs between college terms.</p>
<p>Not to off-track the thread...but wondering...if you haven't saved as much as you should have for your income level, if schools/fed govt will let you take out as much loan $$ as needed to pay for tuition? Or is there a cap? Going to call fin aid offices re: this also....</p>
<p>At this point, we already caught on the downturn with regards to 529 funds.
My question is more on the order that we should utilized the funds (exhaust 529 first then loans OR loans first and then 529 funds). </p>
<p>Our first kid starts college this fall.
1/3 of the cost of our state school for four years is roughly equivalent to $35K.</p>
<p>Yes, we are counting on cash flow and scholarships in hand to cover about 1/3. Also we are assuming four years in the college.</p>
<p>Jolynne Smith,
At least in Ca they let you borrow as much loan to cover as long as you qualify for loans from credit check.<br>
My strategies keep changing all the time.</p>
<p>Wish to hear from other parents who must have gone through this before.</p>
<p>I think you should exhaust the 529 first. As soon as you take out loans you will also have to be making payments on the loans -- so you make it harder on your personal budget to make those payments over time. Of course if you borrow $35K now or later the overall loan payments will be the same in theory -- but right now you have added household expenses. </p>
<p>Also, if you have a 529 that is set up in that child's name and anything happens that prevents him from finishing college, you will not be able to use that money for any other purpose without serious tax consequences & penalties. (If the money can be used for younger siblings, then it would not be as much of a concern).</p>
<p>Ijmom--whew, that's a relief (although we aren't in CA, but NJ..hope it's similar). It's one thing to be staring down a lot of potential debt for child's education---completely different to be staring down at totally foreclosed opportunity.</p>
<p>Interesting, ellenmenope and calmom, thanks for sharing your perspectives for the OP and the rest of us.</p>
<p>Please forgive my ignorance, but when taking loans to pay for tuiton, one does it at the start of each year to cover for the tuiton of that year only?</p>
<p>Thanks ellenmenope and calmom for the input.</p>
<p>I am kind of moving more towards a conservative approach.
Using half of 529 now and borrowing half. That way there is a potential for 529 money to grow as well.</p>
<p>How can your 529 go down by 25%? My D's 529 is invested in a variable plan, where the returns are not great (I don't think many 529s have decent returns, but the tax advantages juice them up enough to make up for it), but over the years they have moved them from a stock-heavy to bond-heavy to essentially money market funds. If you insisted to keep them in stocks then.... you have learned a painful lesson. No money needed in the next 10 years should be in stocks, preferably actually closer to 15 years (anyone remember 2000 :D).</p>
<p>Interesting, GroovyGeek. I thought ours was invested in a variable plan too (w/increasing conservativism as college approached). We lost a bunch of $$ on the last cycle. Interesting to hear that the same did not happen to others' 529s. Not happy w/Morgan Stanley...! Thanks for the heads up.</p>
<p>The current climate should be a good lesson to those who are investing for their, currently much younger, kids' college fund. Some people complain about losing a lot of money in the funds with their kids going to college next year (in the same way people complain about their retirement fund tanking when they wanted to retire next year) but the simple fact is that if you follow a proper strategy then this shouldn't happen. If you're kid's going to college next year then the money that's supposed to be used to pay those bills should be in places where it can't lose value (eg CDs, money market funds). If your kid is going to college in a few years (eg 3-5) years time then even then you should have a decent propotion of the funds in 'safe' investments. If your kid was just born and you won't need the funds for 18 years, then what's happening now in the markets shouldn't concern you and in fact it's probably an ideal time to start saving for the long term since the downturn means there are bargans to be bought. </p>
<p>Some people try to gamble and keep funds in higher risk investments too close to the time when they actually need the money... just like at the casino if you gamble you could lose your money just when you planned on needing it. Don't simply just hand your money over to someone and assume they'll take care of everything... it's your money and you're ultimately responsible for what happens to it. </p>
<p>Make the effort to learn about what you need to do and keep an eye on where it's being invested. If you're experiencing major hits to college savings and you need that money in the next year or two then it wasn't being managed properly... if the majority was in safe and secured investments then it would be safe and secure losing at most a few percent if the small proportion that was in riskier areas really really tanked.</p>
<p>That makes sense, rocketman. And, that's exactly what we were told when starting up the 529 (got more conservative as things go). Wanted something we didn't have to 'oversee' & the plan admin would take care of re-allocating to less-risky funds as time passed (um, that's what we paid for?). Not happy to find big loss, if, as you say, by time kid is 17 that shouldn't be happening!! Will call to chat w/fin plan co. today!</p>
<p>Ours in Fidelity national plan, and I am sure they won't gamble with 529 money and invest in a combination of stocks and bonds based on childs age.</p>
<p>At least we haven't lost any money in our 529, but the gain had reduced dramatically. It would have come ahaed if we had saved in CDs. Only reason to use 529 is to Not to pay the tax on gains. </p>
<p>We started planning for our kids college when they were very young. Only so much that middle class parents can do. When we started saving, we counted that some money would come from merit scholarships based on the scholarships available at the time. Now we are here and those scholarships are no longer available (CA government cut the merit scholarships during 2003 - 2007).<br>
I guess I needed a place to vent... sorry</p>