Making Tough Decisions
Whether a parent chooses to pay for a childâ€™s college education is largely a personal decision. But perhaps the bigger question is what can you really afford to pay? Tuition and fees at private, nonprofit, four-year colleges and universities averaged $28,500 per year in the 2011â€“2012 school year, reports the College Board. In addition to being on track to have enough money saved for retirement, a three-month emergency fund should also take priority over saving for college, says Ivory Johnson, founder of Delancey Wealth Management L.L.C. in Washington, D.C. â€śPeople tie all their money up in retirement and college savings and then thereâ€™s a bump in the road and they find themselves drawing money out and incurring expensive tax consequences.â€ť Taking out a home equity loan to pay for tuition should also be avoided, Johnson adds.
Once your basics are coveredâ€”living expenses, emergency fund, and retirementâ€”you can start diverting extra money to your childâ€™s education without sacrificing your own financial stability. Instead of aiming to save $100,000 for your childâ€™s college education, it may be easier if you break it down and save a portion of that goal. For example, you may plan to save $25,000, or 25%â€”enough to pay for one yearâ€”and look to scholarships and loans to make up the rest.
Ronda Liggins always knew sheâ€™d do whatever it took to make sure her son, Alex Borden, attended college. â€śI just want to help him beat the odds,â€ť the 53-year-old Philadelphia mother says. Since Liggins canâ€™t afford to pay nearly $20,000 per year for tuition at Howard University, where Borden is a junior and business finance major, she and Borden have taken a multistrategy approach to paying for college. Borden applied for every scholarship and grant he could find, amassing nearly $20,000 thus far in grants, but mostly from federal and private student loans. Liggins has also chipped in nearly $10,000 in personal savings.
Though the single mother would love to fund more of Bordenâ€™s education, â€śI personally donâ€™t know a whole lot of people that have that kind of money,â€ť she says. â€śYouâ€™re trying to pay your current bills and people arenâ€™t getting paid enormous salaries.â€ť
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