Have a Child in High School? It's Still Not Too Late to Save for College
Parents of high school juniors and seniors sometimes ask us, "Is it too late to save for college?"
The answer is no. While generally speaking, the earlier you start saving for college, the better, it is never too late to start saving for college.
Anything you save today is something you won't have to borrow later on, and pay back with interest.
Many parents don't know that students can only borrow a limited amount of money for college in their own name without having to pass a credit check. And those loans, called Federal Direct Student Loans, are part of the student's financial aid offer. Any additional loan that you may get to pay a remaining balance must be credit approved, and most students just don't have the credit to be approved without a co-applicant. This co-applicant is often a parent. Thus parents are equally responsible for these loans. So the amount that your family will need to borrow and pay back will be important to you.
After financial aid, there are only three ways that you can pay for college: Past income, meaning any savings you have, present income, meaning the money you are earning while your student is in college, and future income or loans. It's best to maximize the first two resources before moving on to loans.
529 college investment plans may be opened at any point before or even during college. These plans invest your contributions, which grow tax deferred, and withdrawals are tax free when used for qualified expenses like tuition, fees, food and housing, books, supplies, and equipment. They also have minimal impact on financial aid. There has also been an expansion of qualified uses in recent years, which allows for a one-time payment of up to $10,000 to be made against a student loan. So if you find that you have needed to borrow and are still saving, you can use your 529 to help pay that loan and retain that 529 tax benefit.
Most colleges also partner with an outside company to offer interest-free monthly payment plans. These allow parents to contribute a monthly payment amount to pay for college expenses while their child is in school, rather than paying for those costs in one pre-semester payment. So $200 a month over 10 months is $2,000 that you are not borrowing. Setting aside a monthly amount to save now can prepare you to perhaps replace that monthly savings amount to a monthly payment plan when your student enters college. That way you are using every avenue available to you before you begin to borrow.
So even if your child is just months away from enrolling in college, it's still beneficial to set up a 529 plan and save as much as you can before classes begin. The Massachusetts 529 plan is the U.Fund. You can learn more about it and open an account here.