Solutions: Saving for college in tough financial times

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Solutions: Saving for college in tough financial times
By COURTENAY EDELHART, Californian staff writer
cedelhart@bakersfield.com | Saturday, Feb 7 2009 12:00 PM

Last Updated: Friday, Feb 6 2009 8:29 PM

Carson Crawford’s parents contribute to a college fund for their 14-year-old son.

The Centennial High School freshman plans to add to the coffers by working full-time in the summer.

And he counts on the new president to make the economy stronger, saying “I’m confident it will get better.”

But like many teens and their parents, Crawford worries about soaring college costs, especially given a troubled stock market and a credit crunch that’s making student loans harder to get.

It’s tempting, financial advisers say, to stop saving for college or move investments to more conservative positions in a weak economy.

Three words: Don’t stop saving.

“You don’t want to stop, because I can tell you as a parent of two college-aged kids, time flies and it’s there before you know it,” said Greg Fraser, vice president and manager of the Bakersfield branch of Charles Schwab.


WHY IT ALL MATTERS

• The average cost of a private, four-year college this year is $25,143, up 5.9 percent from last year, according to CollegeBoard.

• Public four-year schools cost $6,585, on average, up 6.4 percent from the year before.

Costs coupled with families’ financial footing may chip away at optimism.

“The people I talk to are extremely worried, very nervous,” said Joan Herman, the lead counselor at Foothill High School.

Part of the problem is financial aid packages are determined by income from the previous year.

“I’ve already had some tell me they had good income last year, but this year they’ve recently been laid off or are anticipating losing their job soon,” Herman said.

County employee Debbie Muncy, 47, is watching county budget deliberations warily as she plans for her 17-year-old son’s education.

“He’s in the Explorer program and wants to go into law enforcement,” Muncy said of her Foothill High student. “We’re hoping if he gets hired onto the police force, the city can help him with tuition.”


SOLUTIONS TO CONSIDER

An ideal time to invest is when markets are distressed, said Joe Ciccariello, vice president of college planning for Fidelity.

That’s because stocks are cheap right now. Some, rightly so. But there are solid companies whose prices have fallen with the overall market, and over the long-term those stocks will do fine, he said.

Don’t be discouraged by mutual funds that mandate an upfront contribution of $1,000 or more to get started. Some will waive that requirement if you commit to an automatic draft from your checking account, which in some cases is as little as $25 a month.

If stock market turmoil has you queasy, choose an “age-based allocation,” or actively managed fund that factors in the child’s age, Ciccariello said. Such funds take on more risk for very young children, but become increasingly conservative as college gets closer.

Another popular option is a 529 plan, which has state and federal tax advantages, provided the money is used for qualified educational expenses.

Each state has its own plan, but you needn’t be a resident of a particular state to invest in its 529. In some instances there are additional tax benefits to investing in your home state, though, so choose carefully.

Maintain a good credit score for both parent and child, said Roslyn Whitehurst, spokeswoman for credit rating agency Experian.

Borrowers who have a high debt load, skip payments or pay late diminish their chances of getting a loan. Even if they’re successful, they’ll pay a higher interest rate.

Children who will be applying for loans in their own name need to have a credit history. Have teens get a credit card and make sure they pay off the full balance on time every month, Whitehurst said. That way they build a positive track record.