College — Empty your Nest, not Your Savings


College — Empty your Nest, not Your Savings

We all want the best for our kids. Despite the fact that tuition costs at private universities have nearly tripled in the last 30 years, a college education still counts in the job market. On average, college graduates receive higher salaries than high school graduates.1

Can you afford college?
College costs are anticipated to grow significantly over the next 10-20 years.
Can you afford it?

For 2011-2012, the College Board estimated the following average
annual costs for tuition and fees:

  • Public four-year colleges — $8,244 for in-state students;
    $12,526 for out-of-state students
  • Private, non-profit four-year colleges — $28,500
  • Public two-year colleges — $2,963

Add to these figures the cost of housing, food, books, fees, and other living expenses. Then multiply by four or five (many students take more then four years to get their degree) and then multiply by the number of school backpacks currently lined up in your hall. You can assume these figures will increase at roughly twice the inflation rate. According to FinAid, a college that costs a total of $17,000 a year today may cost over $38,000 a year 12 years from now.

Plan and save early

You’ve got several options for building a college fund. In each case, the more years your money is invested, the more potential you have for your savings to grow:

With careful planning and disciplined budgeting, you can at least offset some of the costs of a college education.

  • 529 Plans — These state-sponsored plans offer tax-deferred earnings and income-tax-free withdrawals for qualified education expenses, which include tuition, room and board, books and supplies.
  • Coverdell Education Savings Account — These accounts offer similar earnings and withdrawal benefits to 529 plans, but you must meet certain income requirements and annual contributions are limited.
  • Uniform Gifts (or Transfers) to Minors Act — This option allows you to transfer up to $11,000 a year to an account in your child’s name. However, the child can use the money for any purpose once he or she reaches the age of majority, so you don’t have ultimate control over the money.

In addition to savings plans, many families also apply for financial aid. The first step is completing the Free Application for Federal Student Aid (FAFSA). Eligibility for federal financial aid can get complex, so do your research on the financial strategies that may maximize your opportunities. Speak with an ING financial professional for guidance.

Age-based investing

With retirement investing, you adjust your investment mix based on how many years before you need your money. It’s the same with college investing, only the time horizon may be shorter.

If you start saving when your child is born, you’ll have about 17 years to build a college nest egg. Early on, consider growth investments like stocks and stock funds. In grade school, consider shifting to a more balanced approach with both stocks and bonds. In high school, consider shifting again to more conservative and stable investments such as CDs, money market investments and bonds to help protect your savings. Regardless of your time horizon, it's important to ensure your investments are consistent with your risk tolerance and investment objectives. Learn more about investing basics.

Avoid pulling money out of your own retirement accounts and think three times before borrowing against your home to fund college costs. The risks associated with these options may be too great. Remember, you can borrow to help send a child to college, but you can’t borrow for your own retirement.

Be realistic and reach out for more help

With careful planning and disciplined budgeting, you can offset some of the costs of a college education. In addition to savings plans, you can combine financial aid, scholarships, grants and student loans to help make up for shortfalls. An ING financial professional can review all of your options and help develop a strategy. 

1 Source: U.S. Census figures
2 Source: The College Board

Before investing in a 529 plan, you should consider whether the state you or your designated beneficiary reside in or
have taxable income in has a 529 plan that offers favorable state income tax or other benefits that are only available if you
invest in that state's 529 plan.