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Saving For a Child’s College Education

Paying for college is not a one-shot, one-year affair. Parents and grandparents will have to think in terms of four years for a baccalaureate, six years or longer for a graduate or professional degree, and an eternity if they have seven bright students spaced two or three years apart. Since you may be paying college bills for many years to come, it is essential to understand a bit more about the overall college cost environment.

Tuition costs continue to outpace inflation. According to the College Board, average tuition and fees for four-year public colleges have increased at a rate almost three times that of inflation. There are several reasons for the rapid increase in tuition

• Faculty salaries must be raised to attract new professors and to keep tenured ones from leaving.
• Maintaining old buildings is very expensive.
• Colleges must continually update technology to remain competitive.
• The number of high school seniors is declining, so fixed costs are spread among fewer paying customers.

10 Ways to Avoid or Minimize Student Loan Debt

If you really want to reduce your debt, the first thing you will need to do is create a spending plan, then stick to it. Your spending plan, or budget, needs to focus on paying down your debt and not adding to it. This may mean cutting up the credit cards and avoiding sales and bargains that are too good to be true. Set your primary financial goal to be out of debt in six months, a year, two, or whatever it takes. Write it down. You need to stick to this plan until you have achieved your goal.

Identify and prioritize essential expenses. Limit your spending to the bare essentials: food, shelter, utilities, etc. It may be difficult to define what is essential and what is "luxury," but if you are to get out of debt, you must be tough. Make a list of essential expenses and how much they cost on average each month.

The Real Cost of College

Junior has just arrived home from the maternity ward, and like the model parent you are, you want to start investing to send the little nipper to Harvard. What should your asset allocation strategy be for this investment goal?

Unless you are wealthy, you will need to generate lots of capital to fund an Ivy League education. Fortunately, you have a fairly generous investment time horizon of 18 years or so. You might well consider placing most of your investment capital in stocks to generate as much growth as possible--keeping in mind that you might have to endure the occasional dip or even a couple of bear market years. If you are concerned about exposing all of your capital to the market, you might want to place a small portion of it -- say 20 percent -- in safer investments such as bonds.