Steps to Make up for Lack of College Savings

CollegeIf Ken Clark, author of “The Complete Idiot’s Guide to Paying for College,” could reduce that complex task to one simple rule, it would be this: “Plan on putting away $75 per kid per month from the day they’re born, and that will get you four years at a state school.”

Clark, a certified financial planner, realizes it doesn’t factor in this reality, among others: “College planning is one of the ultimate procrastination items. We’re so optimistic about our ability to deal with it later. We don’t realize till we get there how brutal it’s going to be.”

If you haven’t yet saved a penny for higher education, there are still actions to take. But Clark urges parents not to do it this way: “What I see over and over again is, right when kids go to college, we’re typically in our prime earning years, 45 to 50 years old. We make two critical mistakes. Because we haven’t saved for college, one, we stop putting money in our retirement plan and, two, we raid our retirement plan. By the time our kids are done with college, we have only 15 years to make up for the damage we’ve done, and that’s a tall order.”

Retirement loans don’t exist. Student loans do. Here are other options he wants you to consider:

?Tax credit: The relatively new American Opportunity Credit expands the previous Hope tax credit (which applied to the first two years of post-secondary education) to four years. Taxpayers who meet income limitations are eligible for up to a 100 percent credit on the first $2,000 of education expenses per year plus 25 percent on the next $2,000. “This is not a deduction,” Clark said. “It’s a credit; it hits your bottom line. It’s a great deal.” (Go to for more information.)

?Community college: “One thing that I for years have been making the rally cry for is community college,” he said. “Rather than battle to keep your kid out of the frat house and bar and fighting over him getting a D-minus in algebra at the state school, consider having your kid stay home, go to community college, get a job, then two years later go to the college he wants to go to. At the same time, he’ll mature and avoid a lot of the typical college mistakes.”

Clark contends that it’s easier to transfer to some state colleges than it is to gain admission as a freshman.

“Going in as a junior to take upper-division classes with a solid GPA from a community college is a great play.”

?Savings plan: Consider starting a tax-deferred 529 college savings plan. Some states give a tax deduction or matching credit plus, Clark said, “if you take it out to pay for college, you pay no tax on the growth, whereas if you stuck it in a money market in a bank, you’re going to pay tax, etc.”

With college costs rising 5 to 7 percent a year, another type of 529 plan to consider is prepaid tuition, where parents lock in today’s tuition rate for future attendance. “I would definitely look at that if I have under 10 years,” Clark said. “There’s nowhere (else) I can get a 5 to 7 percent return on a three-year investment.”

?Public service: An oft-overlooked option is a loan forgiveness program in a public service field, such as nursing.

“Some states will wipe out $10,000 a year (from college debt) after a certain period for being a teacher.” He also added that the military remains one of the great deals for paying for college.

Source: McClatchy-Tribune Information Services.