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You Can Afford College!!

By Steve Dombrower, CFA
Vice President, College Savings Plans
OppenheimerFunds, Inc., Program Manager for Numerous 529 Plans

January 4, 2013

I’ll bet “You Can Afford College” is something you don’t hear very often.  More likely than not what you’ve heard about paying for your child’s higher education includes things like continuously rising tuition inflation and adjectives like astronomical or impossible.  Perhaps you’ve seen or have been presented with six figure numbers in terms of what you need to save making you feel like you just won’t be able to get there.

The truth is with a little knowledge, planning, and the right tools, paying for college can be within reach.

First thing’s first.  Yes, college is going to be expensive.  You probably already know that.  However, most parents focus on that huge ‘total cost’ number and they shouldn’t.  Reasons for not focusing on the huge numbers you typically read about are as follows:

·         Those huge numbers are based on ‘sticker price’ which, similar to buying an automobile, most parents will not be paying

·         Paying for college is a mosaic of multiple sources of which savings is only one

In terms of not paying ‘sticker price’, as reported by the Chronicle of Higher Education in April of 2012, the average institutional discount rate for freshman among colleges surveyed rose to 42 percent in 2010-11. The discount rate for all undergraduates climbed to 36.4 percent last year.   These ‘discounts’ can be made up of need based and/or non-need based grants, scholarships, and the like.  So before going into shock when seeing a six figure number, take a breath and understand it’s likely you won’t be paying that much.

When it comes to paying whatever the bill might be, what you managed to save over the years will likely be part of a multi-faceted financial package that will include savings, financial aid, school based aid, loans, and current cash flow.  So take another breath and realize that your savings goal doesn’t’ necessarily have to match what your ‘discounted’ costs might be.

Now that you’ve taken a couple of breaths and hopefully feel better about sending your child or children to college, if you haven’t already done so start saving now.  Starting early and saving often should help your child reduce the loan portion of that financial package I mentioned earlier.  Every dollar saved is a dollar less in loans which can significantly reduce your total out of pocket costs.  I’ll address that concept in a future post with some real examples.

Lastly, when it comes to setting up that savings plan, consider using a 529 College Savings Plan.  If you’ve already started to save and are not using a 529 plan, consider moving what you’ve saved into a 529 College Savings Plan.  These plans were designed specifically for college savings and can offer significant tax benefits regardless of your income level.  

This time of the year is a great time to start! Give the gift of education.  Contributions make a great holiday gift and can potentially offer you a State tax deduction1 if you make that gift before the end of the year!
 

1.     Each state plan has specific restrictions read the respective Plan disclosure document before investing.

The views in this article (“You Can Afford College”) represent the opinions of OppenheimerFunds, Inc. and are not intended as investment advice or to predict or depict performance of any investment. These views are subject to change based on subsequent developments.

This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or to avoid penalties that may be imposed under U.S. federal tax laws. Clients should contact their own legal or tax advisors to learn more about the rules that may affect individual situations.

Investments in 529 college savings plans are neither FDIC insured nor guaranteed and may lose some value. Some states offer favorable tax treatment to their residents only if they invest in the state’s own plan. Investors should consider before investing whether their or their designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program and should consult their tax advisor. Before investing in a plan, investors should carefully consider the investment objectives, risks, charges and expenses associated with municipal fund securities. Plan disclosure documents contain this and other information about a plan, and may be obtained by visiting oppenheimerfunds.com or calling 1.800.255.2750. Investors should read these documents carefully before investing.

529 plans managed by OFI Private Investments Inc. are distributed by
OppenheimerFunds Distributor, Inc. Member FINRA, SIPC.
Two World Financial Center, 225 Liberty Street, New York, NY 10281-1008
© 2012 OppenheimerFunds Distributor, Inc. All rights reserved.
 


About the Author:
Steven D. Dombrower, CFA, is the Director of Marketing, Distribution, and Investments for the College Savings Group of OppenheimerFunds, Inc.  OppenheimerFunds is the Program Manager and Distributor for several 529 plans including plans in New Mexico, Illinois, Texas, Nebraska, and the Private College 529 Plan.  As of November 2012, OppenheimerFunds holds $7.2 billion in college savings for diploma-bound beneficiaries across the country.   To learn more about the 529 plans managed by OppenheimerFunds, visit www.oppenheimerfunds.com or call toll-free at 800-858-9819.

1 comment:

  1. Thank you for the solid article based on a foundation of well thought out points.

    ReplyDelete

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