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The Financial Crisis and -- Gulp -- College Savings

By Rebeldad Brian Reid

I’ve officially stopped looking at my 401(k) statements, having decided that -- with more than three decades to go before I step off the hamster wheel -- the day-to-day fluctuations of the market aren’t all that predictive of whether or not I’ll be a pauper in my old age. But I am reading the statements from my college savings accounts much more closely, since I figure I’ll be writing checks for that far sooner. And the wild gyrations of the market make we wonder if I’m being smart about those investments. So I checked in with Annette Simon, a certified financial planner and a principle at the Garnet Group in Bethesda.

Most of my college money is tied up in a 529 plan that is administered by the State of Virginia. The portfolio for each child is adjusting according to their age: the older the kid, the more conservative the investments. Maryland works in much the same way. Simon said that was the smartest way of using the 529: throw the money into an age-based plan and just forget about it: “The age-based plans do a pretty good job of protecting your interests and protecting you from yourself. People always think that they have a higher risk tolerance than they really do.”

The plans do two things well, according to Simon. They not only protect parents from getting cocky with their 16-year-old’s future tuition, they encourage parents with a long time horizon not to panic and put all of their toddler’s college savings in Treasury bonds. Which – I have to admit – doesn’t seem so crazy nowadays.

But while panic isn’t the right call, there are a lot of good reasons to be thinking ahead. The other traditional method of funding college – student loans – has not been impervious to the credit freeze. While government-backed student loans are still out there, the Associate Press noted that the private student loan market is drying up, making it harder for many students to afford school.

The other variable, of course, is simply picking a cheaper school. A new analysis has found that costs continue to be astronomical (it estimates it’ll cost you more than $50,000 to spend a year at George Washington, the school with the second-highest total cost in the country), making UVA or Maryland sound like a spectacular deal.

So, to quell that queasy feeling in my stomach when I look at the college savings statement, I’m subtly trying to convince my daughters that Virginia is the best school they could possibly attend. But I’m curious what you all are doing to prepare for impending college expenses – particularly those of you with caps and gowns in the more immediate future.

Brian Reid writes about parenting and work-family balance. You can read his blog at rebeldad.com.

By Brian Reid |  October 30, 2008; 7:00 AM ET  | Category:  Family Finances , Teens
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Comments


One of the best ways to afford college is to spend the first two years at a community college and then tranfer to a 4-year school to finish the degree. I got my associates degree at Anne Arundel Community College, one of the top ten junior colleges in the country for the past ten years. I'd recommend it to anybody. Studies show that kids who spend at least one year at community college do better in the long run because they don't live on campus or waste as much time partying. I also enjoyed the diverse student body, including the older students I got to work with.

I was in for quite a shock when I transferred to Loyola College of Maryland to finish my degree. The professors left the classroom as soon as the lecture was over; no time or inclination to actually talk with students and office hours were rare. And the only thing I ever heard the students talk about was how drunk they were, how hungover they were at the moment, or how drunk they were going to get.

It was such a waste of time and money, I transferred to the University of Baltimore, which was superior in too many ways to enumerate here. It was also an inexpensive way to finish school since UB doesn't waste money on campus housing, sports teams, etc. I was also impressed with how focused the student body was; they were there to learn. And the professors are top notch. I'd recommend UB to anybody; and that's where I'm going in the future to get my graduate degree too.

Posted by: gypsyrom1 | October 30, 2008 8:34 AM | Report abuse

One of the best ways to afford college is to spend the first two years at a community college and then tranfer to a 4-year school to finish the degree. I got my associates degree at Anne Arundel Community College, one of the top ten junior colleges in the country for the past ten years. I'd recommend it to anybody. Studies show that kids who spend at least one year at community college do better in the long run because they don't live on campus or waste as much time partying. I also enjoyed the diverse student body, including the older students I got to work with.

I was in for quite a shock when I transferred to Loyola College of Maryland to finish my degree. The professors left the classroom as soon as the lecture was over; no time or inclination to actually talk with students and office hours were rare. And the only thing I ever heard the students talk about was how drunk they were, how hungover they were at the moment, or how drunk they were going to get.

It was such a waste of time and money, I transferred to the University of Baltimore, which was superior in too many ways to enumerate here. It was also an inexpensive way to finish school since UB doesn't waste money on campus housing, sports teams, etc. I was also impressed with how focused the student body was; they were there to learn. And the professors are top notch. I'd recommend UB to anybody; and that's where I'm going in the future to get my graduate degree too.

Posted by: gypsyrom1 | October 30, 2008 8:34 AM | Report abuse

One of the best ways to afford college is to spend the first two years at a community college and then tranfer to a 4-year school to finish the degree. I got my associates degree at Anne Arundel Community College, one of the top ten junior colleges in the country for the past ten years. I'd recommend it to anybody. Studies show that kids who spend at least one year at community college do better in the long run because they don't live on campus or waste as much time partying. I also enjoyed the diverse student body, including the older students I got to work with.

I was in for quite a shock when I transferred to Loyola College of Maryland to finish my degree. The professors left the classroom as soon as the lecture was over; no time or inclination to actually talk with students and office hours were rare. And the only thing I ever heard the students talk about was how drunk they were, how hungover they were at the moment, or how drunk they were going to get.

It was such a waste of time and money, I transferred to the University of Baltimore, which was superior in too many ways to enumerate here. It was also an inexpensive way to finish school since UB doesn't waste money on campus housing, sports teams, etc. I was also impressed with how focused the student body was; they were there to learn. And the professors are top notch. I'd recommend UB to anybody; and that's where I'm going in the future to get my graduate degree too.

Posted by: gypsyrom1 | October 30, 2008 8:34 AM | Report abuse

Here's a question for you, Brian - since you now live in Illinois, will your kids still be eligible for in-state tuition at UVa? And will they compete for admission with VA residents or as out-of-state students? (If you're planning on moving back before they graduate that's moot, but different states handle this differently.)

Posted by: ArmyBrat1 | October 30, 2008 9:04 AM | Report abuse

AACC top ten? There are no rankings for community colleges.

Posted by: cprferry | October 30, 2008 9:16 AM | Report abuse

AACC top ten? There are no rankings for community colleges.

Posted by: cprferry | October 30, 2008 9:16 AM | Report abuse


And no bragging rights! Pay attention!

Posted by: jezebel3 | October 30, 2008 9:22 AM | Report abuse

"AACC top ten? There are no rankings for community colleges."

Actually, there are - the Washington Monthly started it a year or so ago. See http://www.washingtonmonthly.com/features/2007/0709.ccrankings.pdf for the "Top 30". Um, AACC's not on that list anywhere. NTTAWWT.

(Hey, if the WaPo can rank high schools based on something as idiotic as how many AP tests the students take, somebody else can rank JC's on whatever criteria they like. As Jay Matthews says - don't like my rankings? Come up with your own system and do better.)

Posted by: ArmyBrat1 | October 30, 2008 9:30 AM | Report abuse

I told my daughter, now in her senior year in HS, that the family financial situation doesn't justify sending her to a 4 year party at the young age of 17. Besides she doesn't really know what she wants to be when she grows up, though her childhood dream of pursuing a PHD in marine biology to swim with the dolphins has dropped off the list I think.

So it looks like it'll be the local community college for her until we get it all figured out.

Posted by: WhackyWeasel | October 30, 2008 9:40 AM | Report abuse

I told my daughter, now in her senior year in HS, that the family financial situation doesn't justify sending her to a 4 year party at the young age of 17. Besides she doesn't really know what she wants to be when she grows up, though her childhood dream of pursuing a PHD in marine biology to swim with the dolphins has dropped off the list I think.

So it looks like it'll be the local community college for her until we get it all figured out.


Posted by: WhackyWeasel | October 30, 2008 9:40 AM | Report abuse


Classy.

Posted by: jezebel3 | October 30, 2008 9:49 AM | Report abuse

There's nothing wrong with going to a Community College, particularly for students who don't know what they want to do and/or aren't mature enough to handle being away from home in a party environment.

However, if your ultimate goal is a BA or BS degree from a good 4-year school, you do need to look at how many credits can transfer, what courses will apply, etc. Plan ahead.

There are some very good programs - my brother's daughter wants to be an elementary school teacher. Universities in North Carolina are so over-crowded that they work closely with community colleges, to ensure that students majoring in education (and other subjects as well) can take their first two years at a community college and then transfer to a university with every credit counting - it's a smooth 4-year program. And the tuition at the community college is about one-third of tuition at the university. But not every place/program works that smoothly.

Posted by: ArmyBrat1 | October 30, 2008 9:49 AM | Report abuse

We did something similar to Brian. We started saving $X each month in the VA 529 when my daughter was born. We also save some money in another savings type account linked with our employer. The reason for this is if your kid chooses not to go to college or can't go to college, then there are some heavy tax penalities to the 529 money.

We also planned to pay off our mortgage before our oldest child finishes high school. So if our investments do not pay off as we think they should (we estimate a 5% real return annually), then we can always swing some money while they are actually attending.

We are paying more in day care then our mortgage plus extra payments to the mortgage. We are hoping to divert some of that extra money to college savings after the kids are done with full time care. But life has a way of expanding to fulfill the extra money. Their clothes cost more, their food costs more, their activities cost more as they get older. So we will have to see.

But I always figure my default plan could be 1) live at home and attend GA Mason, 2) do first two years at a community college, 3) take out a student loan and allow the kid to live at home rent free while they pay off the loan (given they have a responsible payment plan).

But my nephew goes to VA Tech now. He is a good student with a great GPA. But honestly, from what he tells me of the classes, I am NOT at all impressed with the education they are providing for the cost. He has one class in a large warehouse room, where there is NEVER a professor present. There is one Teachers Assistant who walks around if you have questions. But pretty much there is a set software package and the students sit in the warehouse and read the online lectures and do the assignments. Sounds like a prepackaged software that you could buy on QVC for $50 but they will charge you $1500 to take the class. What a waste.

The only thing positive I can say about the undergrad education at the large state schools is that the student body tend to be better students then the cc students. They tend to have better GPAs and test scores going into college. But once in college, it is probably fair game.

Best of luck to all who are struggling to pay for their children's education. The volatility in the market scares me a bunch but I feel OK most days. My brother did not save a dime for either of his three kids education. One is living at home going to VA Tech and will have borrowed maybe $20K in total, the other is in cc and will transfer to Tech or another local school and probably have no debt. The third is still in middle school. My point is whether you have a solid plan or not, kids still can figure out some way to get through four years of undergraduate.

Posted by: foamgnome | October 30, 2008 9:55 AM | Report abuse

We sent our 17 year old twins to expensive private colleges this year - trying not to panic about the state of our savings. We really feel that we are getting our money's worth at both schools. Some needed time for partying, but mostly hard work. There is scholarship money out there: my kids were so sick of writing essays we could all scream, but it did pay off.

Posted by: kirstenpaulson | October 30, 2008 9:55 AM | Report abuse

I had very high grades and SAT scores from high school, but I decided to attend CC nonetheless because I didn't want college to cost my parents a lot of money. I got a GREAT education and then transfered to one of the best schools in the country. All my units transfered (there was a special relationship between that specific CC and the undergrad school). There isn't an asterix on my degree-- I get full "bragging rights" as so many on this list put it. without putting myself or my parents into debt. Highly, highly recommend this course of action!

Posted by: captiolhillmom | October 30, 2008 10:12 AM | Report abuse

I would look at smaller schools, usually private, to avoid the warehousing of your students. I have 2 children in small (under 3000 students)colleges, with full scholarships. Small colleges are more likely to give scholarships to attract top students and their professors actually teach their classes. In both of their schools, classes are capped at 25 for general ed requirements, less for specialized courses. We have saved for their educations since they were little, but we haven't had to use it. Since it is not in a 529, we can give the money to them without penalty.

Posted by: sparks3 | October 30, 2008 10:19 AM | Report abuse

foamgnome, re tax penalties: if your child does not go to college, you can designate a new beneficiary for the plan and use the money for that person instead. The new beneficiary just has to be a family member of the former beneficiary. According to Section 529 of the Internal Revenue Code,
'family members' include children and their descendants, stepchildren,
siblings, parents, stepparents, nieces, nephews, aunts, uncles,
in-laws, and first cousins.

So if your child doesn't go to college and you want to use her 529 for, say, your nephew instead, you can do it without penalty. (And if your nephew's father chooses to give you a "gift" in exchange for making his son the beneficiary, well as long as it's below gift tax limits that's between you and him. :-)

Posted by: ArmyBrat1 | October 30, 2008 10:25 AM | Report abuse

capitolhillmom---i think that's great that you took your family's finances into consideration and did what you needed to do to help out! i hope that if we are ever faced with the same decisions, my children will be as practical and open minded. i think the stigma of community colleges is wearing off and people are considering them great stepping stones to a good education. i think you also learn the fundamentals of thinking and discipline at a smaller community college than when you throw a 17 year old into a huge state college with thousands of people and more extra curricular activities than can be imagined. i wish i had considered another option before attending the big 10 school that i went to. i got an amazing education, but the transition from high school to university life was overwhelming!

ps.....you TOTALLY get bragging rights! way to go!

Posted by: sp1103sd | October 30, 2008 10:28 AM | Report abuse

The one thing that nobody has discussed here yet has been the child's own contributions to his/her college fund. Ever since the kids started getting allowances, half the money was theirs and half went to their college fund. That continued into paychecks from jobs. The only money that's exempt from the "half to the college fund" rule is gifts. Grandma lives in another state and often sends cash/gift cards to save shipping, so they're allowed to spend all of that gift. Everything else is split.

We started saving before there were 529s, so we always had three parts to college funds: Savings Bonds (DW had them held out of her paycheck), bank account, and mutual funds. The kids' contributions went into the bank accounts.

Posted by: ArmyBrat1 | October 30, 2008 10:35 AM | Report abuse

My kids college funds have definitely taken a whack but my eldest is still five years out from graduating high school so hopefully the accounts will recover.

I'd be very supportive if my kids opted for two years at a community college before going on to a four-year school. I'd also support them if they took a year off from higher education to explore the working world. What I don't want to do is see them spend their college money pursuing a fun but professionally useless major! If you're going to college, know what you're going there for!! Art history won't cut it unless you can explain to me exactly how that leads to a realistic career path.

Posted by: annenh | October 30, 2008 10:53 AM | Report abuse

ArmyBrat: I can't imagine giving my nieces or nephews such a large gift. But I would consider holding it for my grandchildren. But more likely, I see college money as money I give to my child to help them get the best start in life. If my child chooses not to go to college, I would be more likely to save the money till they are at a responsible age and contribute that money to a down payment on a house or a business.

As far as kids contributing, my children seem to get very little money as gifts. What little money my daughter got for birth and christening, we did put into the 529. She has gotten a few savings bonds, which we will liquidate for her when she is older.

But I see my kids contribution as two fold. 1) It is their job to get the best grades possible and make the most of their job opportunities. Take advantage of internships etc... 2) Both of my children will be required to work summers for their own personal spending money and maybe help pay for their books.

Like AB, I do think my kids need to be somewhat invested in their own education. I don't think I require them to put half an allowance in an account, since they would be getting their allowance from us anyway. So saving half is really just moving our money around. But they are required to pick up their own spending money and maybe pay for books.

I would like to try to avoid student loans if possible. I just want them to start their own life off debt free. I also fully expect them to graduate college with out credit card debt.

Posted by: foamgnome | October 30, 2008 10:53 AM | Report abuse

Don't forget to consider large privates, too. You'd be surprised how much aid they can offer most families. It was cheaper for me to go to a top 50 private than Univ. of MD. I was a great student, but not a once-in-a-lifetime achiever, so I'd encourage you not to limit your child's options prematurely. You might have more choices than you think you do!

Posted by: Green_Ipod | October 30, 2008 11:07 AM | Report abuse

Don't forget to consider large privates, too.

Posted by: Green_Ipod | October 30, 2008 11:07 AM | Report abuse

LOL!!!!!!!!!!!!!!!

I won't!

Posted by: jezebel3 | October 30, 2008 11:12 AM | Report abuse

seriously jezebel3, must you comment on EVERY post with something ridiculous? you're starting to sound familiar to some of the annoying trolls that used to frequent this blog!

Posted by: sp1103sd | October 30, 2008 11:22 AM | Report abuse

foamgnome, I was way too subtle. This is what a friend of mine did (or so he claims). The names have been changed to protect the guilty. (Warning: I am not a lawyer or a tax accountant, so check with one of them before doing this.)

"Joe," my friend, saved $25,000 in his son's 529. His son was appointed to the Naval Academy and didn't need the money. So "Joe" went to his brother "Tom" with an offer. Joe would change the beneficiary of the 529 to be Tom's son - Tom's son would now have $25,000 available for college. In exchange, Tom would give his brother Joe "gifts" of $12,000 in each of two years. (The max not subject to gift tax.)

Why?
- Tom wound up $1,000 ahead on the deal - $25,000 for his son's education in exchange for $24,000
- Joe got to make sure that the money went to good use (his nephew's education) without having to pay tax or penalty, and Joe got all the tax deductions while he was saving in the first place.

Sorry for not being clearer.

Posted by: ArmyBrat1 | October 30, 2008 11:25 AM | Report abuse

seriously jezebel3, must you comment on EVERY post with something ridiculous? you're starting to sound familiar to some of the annoying trolls that used to frequent this blog!

Posted by: sp1103sd | October 30, 2008 11:22 AM | Report abuse

Shove it.

Posted by: jezebel3 | October 30, 2008 11:31 AM | Report abuse

Does anybody know anything about online internet degrees? Are they worth the time/money investment?

It seems silly for me to pursue a degree in a field that I've been happily working as a professional for over 20 years, but still, a degree in something would be nice, I guess, if for not any other reason than to put a frame around the sheepskin so I can decorate a wall with my name on it.

Anyway, an online degree is probably the only way I can get a college education, but I haven't decided if it's worth it or not. Any thoughts?

Posted by: WhackyWeasel | October 30, 2008 11:34 AM | Report abuse

I have 529 accounts for both my kids. Now my older one doesn't go to daycare full-time (afterschool care), I put the difference into the 529 account. I plan to do the same for my daughter.
I was able to finish my undergraduate debt-free (my parents and scholarships), so I only had student loans from grad school.
For undergrad I went to a large state school. I wouldn't discount the large state schools. With in state tuition and more acedemic scholarships available than most private schools, my parents were able to afford to pay for my education. I will admit the intro classes were large, but my upper division classes were reasonable sized and some were even quite small. Also by going to a large school, I was able to sample courses in a variety of subjects before choosing an area of study I really liked.
After undergrad, I was accepted into an top private school for grad school. Ofcourse I had to take loans out to pay for that, but on the other hand, it was only two years instead of paying for four years for undergrad, and I then had the alumni network, through which I got my current job.
I think this combination really works.

Posted by: newtoHouston | October 30, 2008 11:35 AM | Report abuse

Wacky: If it is from a decent school, the online course cost the same as the in person classes. Of course they may be more convenient but they are generally not a cost savings. I actually once looked at a study of the cost of online colleges and they cost universities more money to conduct online classe as in person classes. It had to do with the cost of still having a prof as well as tech support. It is a lot more work for the prof in terms of hours but they get paid the same as in person profs.

Posted by: foamgnome | October 30, 2008 11:58 AM | Report abuse

sp1103sd I'm with you!

jezebel3: since I've started reading this blog, I notice you seem to be the only one to comment with disparaging remarks or outright rudeness. If you believe a "topic" to be a prank, bet, or filler, then simply don't comment. It's wasting needed space in my brain.

Posted by: 1herndon | October 30, 2008 12:44 PM | Report abuse

sp1103sd I'm with you!

jezebel3: since I've started reading this blog, I notice you seem to be the only one to comment with disparaging remarks or outright rudeness. If you believe a "topic" to be a prank, bet, or filler, then simply don't comment. It's wasting needed space in my brain.

Posted by: 1herndon | October 30, 2008 12:44 PM | Report abuse


High school drama!

Posted by: jezebel3 | October 30, 2008 12:55 PM | Report abuse

So Foamy, we're talking tens of thousands of dollars for approximately 2 square feet of wallpaper? Sounds kinda pricey to me. With the research I've done, I can't justify the cost/benefit ratio, unless of course, I throw in the intrinsic value of feeding my over-inflated ego, and even then, I don't think it's worth it. Thanks for the input though, I can always count on you for sound financial insight.

Posted by: WhackyWeasel | October 30, 2008 12:58 PM | Report abuse

Ab:Interesting idea. I still wouldn't do it because I could not depend on my brother regifting it back. :)

Posted by: foamgnome | October 30, 2008 1:19 PM | Report abuse

College savings funds, while practical, are just another vehicle for the financial institutions to take your money and have fun with it -- and then when their investments don't pan out, your bottom line gets hit while they get the bailout.

This became clear to me three years ago when my wife and I went to see a financial advisor for the first time ever. The very first thing she tried to steer us into was setting up a college fund and buying life insurance (another HUGE scam). Now at that time, we didn't have kids and weren't even thinking about having any, yet there was the Ameriprise rep pushing, pushing, pushing us to set up a college account. Why would Ameriprise be pushing so hard for us to set up an account that we might never use? Because then they have access to our cash. And that's the scam.

And just like the health care situation in this country, instead of looking at costs and trying to do something about that, the financial and political powers that be simply invent new financial vehicles for the masses to get screwed by. Instead of putting all of our eggs into the financial institutions, how about we work to lower the cost of college education. College, like prisons, have become a huge cash cow for the financial institutions. The less money available in government student loans, the more the public has to look to financial institutions for college financing -- which is exactly the plan.

We said absolutely not to Ameriprise. We now have a young son who will hopefully go to college, but we are never going to set up a college savings fund with a financial institution. I'll pinch pennies and bury them in the backyard for the next 20 years before I'll ever give my cash to a financial institution for college.

Posted by: TruthMakerer | October 30, 2008 1:30 PM | Report abuse

ArmyBrat1:

Question - wasn't the money Tom already had ($24K) considered in addition to the 29 money received from Joe ($25K) for purposes of qualifying for financial aid?

Posted by: Post43 | October 30, 2008 1:34 PM | Report abuse

Post43 - I just asked, and he said that Tom's FAFSA EFC was sufficiently high that financial aid was unlikely. He didn't know how it would count, but it didn't make a difference.

(For those who've never had the pleasure of filling out the Free Application for Federal Student Aid - FAFSA - at the end of the process it tells you your "Expected Family Contribution" - EFC - based on your income and assets. The theory is that that's what they expect you to pay, and the rest of your expenses will be covered by some sort of financial aid. For many people, it's an absolutely ginormous number that will floor you when you see it. "WHAT?? They expect us to kick in XYZK a year! We don't make that kind of money and haven't got it saved! What do they want - us to take out a second mortgage?" :-)

Posted by: ArmyBrat1 | October 30, 2008 2:29 PM | Report abuse

I think it's great for parents to give what they can, and it would be a great world where post-high school education were available to everyone, but ultimately it is the individual IN college who needs to be responsible.

I agree that CC followed by a 4 year finishing point is a wonderful way to go.

Posted by: EmeraldEAD | October 30, 2008 2:40 PM | Report abuse

College costs have gotten ridiculous. When I went to school -- at a small, private college -- tuition, room, and board was under $10K, and one scholarship ($2000) and the max federal loan ($2500) covered 50% of that. Since I graduated, starting salaries in my industry have about doubled -- but my alma mater's fees have almost quintupled. And the same scholarship I earned now tops out at $2500, while the same loan I had now maxes out at I think $3500. So instead of a $4K gap, it's now a $40K gap. Holy %^^@$.

So what am I doing? Saving like I'm going crazy. When I was 17, my mom told me that I should go to the best school I could get into, and we'd figure out the money later. It's ridiculous, sad, and depressing to think that I won't be able to tell my kids the same thing even though we are so much better off financially than she was then. I mean, the whole reason I work and save is to offer my kids a better life, better opportunities than I had.

So I haven't paid any attention to what the current financial crisis has done to my 529s. Partly because we're still 10 years away from the first. But mostly because I need the kind of growth you get with stocks for my kids to have the kind of choice I want to give them.

Posted by: laura33 | October 30, 2008 4:20 PM | Report abuse

Here's a story you might enjoy about how this trillion dollar bail out will be paid for by you, AND your kids. See

http://writingfrontier.com/2008/09/28/smarter-than-this/

Posted by: writingfrontier | October 30, 2008 10:57 PM | Report abuse

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