Planning Ahead: Starting a Family and Preparing for College Savings

By: Keith Bernhardt, vice president of college planning at Fidelity Investments

The months of fall are filled with yellow school buses and volunteer crossing guards, Friday night varsity football and kids trying to get their homework done while there’s still enough light to play outside.  For some, those school years might feel like a lifetime ago, but most of us still remember the anticipation and routine of each new week, especially those high school years leading to that all important decision of where to go to college.

As fall kicks into high gear, perhaps you’re looking ahead to when you’ll be starting a family or you’re already in the routine of shooing young kids out to door to meet the bus and reminding them not to forget their lunches. In either case, back to school season should also be a reminder that it’s time to think through your plans for college savings – the sooner, the better.

Today, many parents are expecting their kids to help foot the college bill using their own savings, income from part time jobs or by applying for student loans. According to Fidelity’s 8th annual College Savings Indicator Study*, parents expect their children to pay an average of 35 percent of total college costs. Yet only 57 percent of parents with kids age 13 or older have spoken to them about how college will be funded, and just 34 percent of parents have actually asked their kids to start setting aside savings. This has potential to be a costly disconnect down the road.

Reflecting back, how much did you talk with your parents about the cost of college? Many families focus on where to apply, what major to pursue or the ideal roommate to wish for, but when it comes to talking about funding the college experience, the conversation stops short. If that sounds familiar, you’re like many current high school students, who are on the doorstep of their college careers and haven’t yet discussed how their family plans to pay for school and whether they’ll need to chip in.

As you think about your family’s plans for the future, consider how you’ll tackle college savings and at what age you’d like to start talking to your kids about college and the funding process.

Here are some questions to think about, keeping in mind that the earlier you give these due consideration, the better you and your family’s chances of setting and sticking to a college savings plan:

1. How much do I need to save for my children’s college?

The cost of college will depend on many factors, including the types of colleges your family plans to consider (e.g., public, private, community), whether your child will be an in-state or out-of-state applicant and the degree to which college costs will rise over time. Numerous websites provide college cost calculators that could help you get a rough idea. Keep in mind, a large majority of families don’t pay full sticker price, and few families count solely on savings when it comes to paying for college.

2. What exactly are my options for college savings?

When it comes to establishing a plan for your college savings goals, parents most often prioritize using tax-advantaged college savings vehicles, like a 529 college savings account.  The money in a 529 college savings account grows federal income tax-deferred and can be withdrawn federal income tax-free for use to pay for tuition, books, room and board.

Another great tool is a cash back rewards credit card, where the rewards can be directly connected to a 529 savings account and, therefore, earmarked for college savings.  Also consider asking family members to make a gift to your child’s college savings plan in lieu of traditional gifts for birthdays, holidays or other special occasions.  Incorporating examples like these into a savings plan, starting early and contributing often can help families stay on track and build a solid college nest egg over time.

3. Should I rely on financial aid to cover part of my child’s college tuition?

Setting a goal to save 100% of college costs likely won’t be realistic or necessary. That said, financial aid can be a complex process, taking into account a number of variables unique to each applicant and nuanced to every school’s financial aid program.  It’s important to understand the different options available, including grants, loans and scholarships, and how much of each needs to be paid back (and when).  Educating yourself on the overall process and talking to experts can also help you better understand how much financial aid you may expect to receive versus how much you may actually receive.

4. Is it a good idea to involve my children in the college savings process?

Communication is critical to help ensure everyone is on the same page.  As the cost of higher education continues to rise, saving for college is becoming more of a team effort.  Explaining the importance of saving and the rewards it can reap in the future can help your children establish positive savings habits and understand the true value of their education.  Think about sharing your specific goals and how much you’ve saved to date to determine whether your child’s college expectations are reasonable and if they need to contribute as well.  Involving them in college savings can be an important step in your child’s financial education, helping them build saving and planning skills that can serve them well throughout life.

Whether you have children today or are just beginning to start a family, it’s never too early to get a college savings plan in place, or to start having conversations about college goals. Set your family up for success with a thorough understanding of the college planning and funding process, the role your kids will play and the economic impact of their college choices.

What do you wish you had talked about with your parents before heading off to college? Will that impact how you plan for college with your own children? 

The UNIQUE College Investing Plan, U.Fund College Investing Plan, Delaware College Investment Plan, and Fidelity Arizona College Savings Plan, are offered by the State of New Hampshire, MEFA, the State of Delaware, and the Arizona Commission for Postsecondary Education, respectively, and managed by Fidelity Investments.  If you or the designated beneficiary is not a New Hampshire, Massachusetts, Delaware, or Arizona resident, you may want to consider, before investing, whether your state or the designated beneficiary’s home state offers its residents a plan with alternate state tax advantages or other benefits.

Units of the Portfolios are municipal securities and may be subject to market volatility and fluctuation.

Please carefully consider the Plan’s investment objectives, risks, charges and expenses before investing.  For this and other information on any 529 College Savings Plan managed by Fidelity, contact Fidelity for a free Fact Kit, or view online.  Read it carefully before you invest or send money. 

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.


*Fidelity Investments, 2014 College Savings Indicator Study, August 2014

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