Posts Tagged ‘college’

Creative Savings Needed to Pay For Soaring College Costs

March 8, 2010

Recently CNN reported that college costs are expected to increase 15%, and in some cases 30%, for the 2010-2011 school year.   This is on the heels of costs that increased 10% in 2009-2010.  This puts parents of younger children in a bind, and puts the future of the higher educational system as we know it at risk.  You can read the entire article here.

While increasing educational expenses may be interesting for many people, it is panic-inducing for parents of children who hope to go to college.  The impact of Use VestMatch to help Save for Collegethese skyrocketing costs is that parents need to expect to contribute astonishing amounts each year in order to pay for college.  Here’s an example.  If college costs continue to rise lower than expected, at a rate of 10%, annual school costs of a public college will go from about $25,000 per year to over $125,000 per year 18 years from now.  In order to reach that goal, parents would need to be socking away about $16,500 per year, assuming an annualized rate of return of 6%.   You say you have two kids?  Make that savings requirement $33,000 per year.  Saving for retirement, too?  Not anymore.

Of course, fiscal logic breaks down with these numbers.  The costs of college cannot continue to rise at the same speed as they have for the last decade, a rate that a several times the rate of inflation.  We’re not sure what the tipping point will be or what the exact outcome will be, but financially the idea of a four-year university where a student lives in or around campus cannot survive if costs continue to rise much faster than incomes or wealth rises.  As the idea of “saving for college” becomes less and less realistic, less people will save.  The fewer people save for college, the fewer children will be able to attend a four-year university as we know it.

However, until that happens, parents need to be saving as much as they can, but they also may be needing help from their own parents.  After all, grandparents often give children financial gifts on birthdays and holidays.  Why not have those gifts be placed directly into a 529 Plan or another account you are using to save for college.  And you can use VestMatch to make , link it to your financial account you use for college savings, and then invite others to join in the effort.  Who couldn’t use a little help?  Or a lot?

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Improve Your Rate of Return Today

April 7, 2009

If you have a college savings plan, perhaps even a 529 plan, for longer than two years, you know that the markets have casued quite a bit of damage to your plan.  Since the fall of 2007, many of the selections available to you in a 529 plan are down more than 20%.  If you invested your savings for college in a traditional equity fund, your losses may be 40% or even 50%.   Unlike many other goals where there is flexibility in timing and costs, for college the timing is pretty set and the costs are not totally in your control, unless you consider a less expensive school.

Now what if I told you that you could have a rate of return of 30% or 40% over the next year?  And you could be invested in the lowest-risk asset you can find, US Treasury bills.  Would you believe me?  It’s possible, through collaboration.

Collaboration, having others provide a helping hand in reaching your goal, can turn this disaster around much faster than you could do it on your own.   Let’s walk through an example:

Jim and Marge have a 10 year old son and they have $5,000 in a 529 plan today, though it had been as high as $9,500.  While they are unlikely to save enough to pay in full for school in 8 years, they want to be as prepared as possible.  They decide they can save $500 per month in their 529 education plan.  In 8 years, they would have contributed $48,000 more to their plan ($500 x 12 months x 8 years).

Alternatively, Jim and Marge set up a VestMatch plan and link their 529 savings plan to it.  Using VestMatch, they invite Jim’s parents, Marge’s parents, and their siblings.  Their parents each sign up to contribute $100 per month, and their siblings in total add another $100 per month.  Jim and Marge still put in their $500 per month.  Note that while Jim and Marge put in $500, just like in the first example, there is actually $800 going in each month — or 40% more than what Jim and Marge invest.  This is the best return on those dollars they will ever find.  In 8 years, they will have added $76,800 to their college savings.

This “rate of return” is available not just for people saving for college, but also for people who are saving for any financial goal — through collaboration.  And VestMatch makes it easy.

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VestMatch 101: Parents Saving for College

March 12, 2009

Have you done the math?  If you haven’t, check out www.savingforcollege.com for a simple calculator for what to expect for college expenses.  To put a newborn through four years of college beginning 18 years from now, you need to save $312,000.  Per kid.  To reach that, at a 4% return on investment, you would need to contribute $837 per month.  Per kid.  And that doesn’t take into account the possibility of a devastating loss of account value due to a declining market, like many have seen over the past 18 months.

Let me go out on a limb here.  Most parents of newborns are not in jobs where they can easily set aside $837 per month to put into an account earmarked for education.  They can scrimp and save, but this is, for most people, unrealistic.  What are the options for parents?

Option 1) Just do it — OK, this is the “best” option, but it is unlikely that this kind of extra money falls to the bottom in the average household.

Option 2) Just ignore it — Perhaps the most common situation.  Maybe we’ll put something aside, maybe not, but we’ll cross that bridge when we get there.  For some people, this works out.  For others, it leaves either parents or children burdened with a heavy loan debt.

Option 3) Just ask for help — Parents of newborns usually have parents (grandparents) who are alive and who are willing to help if they were asked.  Parents don’t want to ask for lots of reasons, and grandparents don’t always want to “force themselves” into situations where they may not be welcomed — and who wants to have a money conversation with their parents?  But we know through research that two-thirds of grandparents would help if asked.

VestMatch comes in at Option 3.  Parents can set up a VestMatch plan in just a few clicks, open an account at any bank or brokerage firm, even open a 529 Plan account, and then link that account to their VestMatch plan.  They then can invite the grandparents (and uncles, aunts, cousins, godparents, etc.), by way of e-mail, to “join” their plan.  At that point, everybody who is part of the plan can see how much is in the account, and they can decide to contribute.  Everybody can also see who is contributing to the account and, soon, how that account is invested.  This way everyone knows the status and can feels confident about contributing.

While your “Plan Partners”, those people who you invited, can contribute to your plan either every once in a while or on a regular monthly or quarterly basis.  They can contribute conveniently through VestMatch, but there is a fee that VestMatch charges to offset the charges that it gets from banks for moving the money.  A less convenient but more cost-conscious way is to either contribute by way of check into the bank or brokerage account set up for education, or set up an automated funds transfer from their checking account into the bank or brokerage account.  Your bank or brokerage firm would have all the paperwork needed to make that happen.

So now the parents are contributing $300 per month, and each set of grandparents decides to contribute $200 per month.  In addition, the godparents and the uncle contribute an extra $100 every birthday.  Are the parents at $837 per month?  Not quite — but they are a little $715 per month, and are well on their way.   Perhaps the parents can think of other friends or relatives who may be willing to kick in $10 or $25 per month to close that gap.

Do you see how VestMatch works?  It works because of the power in numbers.  If you have a goal, and you can bring others to help you reach your goal, you can.

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