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College Savings

College Conversations and the Late Summer Barbecue

Jar of coins marked "SAVE"My colleagues and I talk about how often we have conversations about college financing in the most unlikely places - elevators, supermarkets, the train. At this time of year, I find these conversations very often take place at the summer barbecue. There are a few key topics within these discussions and one that comes up over and over again is, “Is it worth saving for college?” My answer is a simple and resounding, “Yes!”

From all my years working with parents and students to help them finance higher education and from personally reaching the point in my life when I am sending my son off to college, I can say with certainty that saving for college is a very good idea. In fact, I would argue that it shouldn’t even be debated.

However, I do still hear questions and debates about this topic and I think it is because there are some unknowns in how financial aid works and how people finance college.

"Saving for college will hurt my family’s ability to receive financial aid."
A pervasive myth out there is that saving for college will hurt a family’s ability to receive financial aid. The reality is that savings and parental assets in general are counted very minimally when a college is assessing a family’s financial need and awarding financial aid. A family’s income is a much bigger factor in determining how much financial aid they will receive. I encourage families to use our EFC Calculator or the Net Price Calculators on college websites to get a general estimate of the amount of financial aid they may be eligible to receive. Knowing this early on can help a family make a plan.

"I can't save for it all, so why bother saving anything?"
I often hear from families that it's completely overwhelming to think about saving the entire expected cost of college for their children, and so they end up saving nothing at all. Anticipating future college costs is helpful to get a sense of the overall expense and light a fire for making a plan, but it's not helpful if parents get overwhelmed to the point that they ignore thinking about saving entirely. But saving for college is not an all-or-nothing conversation. Saving whatever you can each month is absolutely a good idea because every little bit saved will be a huge help when it comes time to pay the bill. Take a look at our illustration below, which shows the difference in cost between saving for college and borrowing for college.

[caption id="attachment_5567" align="alignnone" width="300"]savings vs. borrowing * Based on 10 years at an interest rate of 7%. This example is an estimate only and market conditions may change.[/caption]

The more you save, the less pressure there will be on your family to pay out of current income and the less you’ll have to borrow in a loan.

"I just can't afford to save."
With this one, I need to be careful with my answer because it's impossible for me to know the details of a person’s financial situation. However, I do know that even saving small amounts helps a lot. For example, you can contribute to the MEFA U.Fund College Investing Plan with as little as $15 per month. $15!!! Among my friends and family, we easily spend $15 a month or more on non-essential items like coffee or music or shoes. It takes just a small amount of money every month to make a big difference.

I always end these conversations by letting people know that MEFA is here to help all families, whatever their situation, make a plan to pay for college. The first steps in the process are easy: start early, save often. If you'd like to speak with me or another MEFA team member on getting started saving for college, reach out to us at (800) 449-MEFA (6332) or info@mefa.org.





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