Should I Save for My Son’s College Education?
Posted on March 27th, 2013 in Uncategorized | 11 Comments »
My father was a big believer in education. (Mom, too—though not the primary breadwinner in the marriage, she worked just as hard as my father, in different ways.) Though not a rich man, he scrupulously paid for, between my brother, sister and myself, 48 years of private school, including 12 years of Yale. I’ll always be grateful for that, and I’ve certainly internalized that sense of reverence for the value of a great education.
My son Griffin is now a year old. (And damn cute, if I may say so.) When he was about a month old, I opened up a 529 college savings account, which, as you all know, let’s you put money into an investment fund without paying federal taxes on it (and sometimes you get a state tax break as well). Knowing that the earlier one invests, the better, I’ve put a decent (for a journalist) amount of money into it—about $15, 000. Thanks to the stock market, it now stands at about $19, 000.
But there’s a growing chorus of skeptics who think that it’s foolish to save in this manner. Some say it’s pointless to save for college because college will be so expensive by that point, it’s better just to throw yourselves on their mercy and beg for aid. Others say that seventeen years from now, online courses will be so good that it won’t make any financial sense to send a student physically to college. Still others say that college tuition is a bubble on the verge of bursting. And still others say that an undergraduate degree is less and less valuable. (The statistics don’t seem to bear this out, though.) Much better to invent an app or something and skip college—to make money rather than spend it.
(Many of these perspectives are illustrated in this NYT “Bucks” post about private college 529 plans, in which you pre-pay tuition for a specific college in the hopes that a) your kid wants to go there and b) he or she gets in. If not, you’re f’ed.)
I’m curious: What would you do in my place? (Or: What do you do?)
I could certainly put the money to other uses—my 401k, home improvements, summer and/or travel experiences for my son. Does it really make sense to scrupulously save for 18 years for an eventuality that may never come to pass?
11 Responses
3/27/2013 5:46 pm
1. Encourage your son to get a vocational degree (which 60% of the young who manage to finish do);
2. At a state school.
The world needs pharmacists and bank examiners.
If the future is more just than the present, Duke University will be reduced to rubble by aerial bombardment, its trustees put on a chain gang, and its administration and arts and sciences faculty given seven strokes of the birch, shot, and sent to the Russian front. Less inane institutions will receive less severe penalties. (But penalties nonetheless).
Here is some advice on plans:
http://www.sec.gov/investor/pubs/intro529.htm
3/27/2013 6:18 pm
Without suggesting anything except the obvious, there are two reasons not to just punt, with sub cases.
1) It’s risky. Of course the odds are hard to calculate, but that is all the more reason to be cautious about hoping for the best.
2) a) If the theory is the he’ll get an education anyway, and society will take care of that somehow, it’s a failure of personal responsibility, isn’t it? Will society work if everyone has that attitude?
2) b) If the theory is he won’t need an education, because he’ll be an app developer [even though in 5 years no one will even understand that term] or in any case plumbers and electricians make good money, well, maybe, but see (1) above.
3/28/2013 9:54 am
http://www.guardian.co.uk/music/2013/mar/28/depeche-mode-interview-delta-machine-dysfunctional
3/28/2013 1:00 pm
Thanks for posting that, DMI. Pretty interesting article, actually. The comments are amusing as well.
3/28/2013 3:31 pm
I suggest you keep saving at the rate you have. W luck you’ll have enough for college and may be able to help your son a little w graduate education. The only thing I’m not so sure is the U529 option. It’s tax-advantaged, but it’s in the kids name. Depending on what your and your spouse’s income is when the kid goes to college, money in his name will reduce elegibility for financial aid more than money in your name -unless you are in one of the higher income brackets in which case he won’t get any financial aid at all.
But there’s another reason to save. Tell your son you are doing it, and tell him that there’s some sacrifice involved, that there are things you are foregoing simply so that he can have a college education. It will remind him often of your expectations for him, and will influence how he approaches his studies.
3/29/2013 1:29 pm
That’s a very good point, Anon; I just don’t know college policies about how money in his name will reduce eligibility for financial aid….wouldn’t that be a counter-incentive to actually saving in this fashion?
3/29/2013 1:58 pm
Richard,
My sense is that the more generous financial aid packages (Harvard’s including assistance up to $180,000 annual family income) postdate those 529 college plans. If so there might be better ways of going about it. I would do some checking around. .
4/1/2024 12:30 pm
Although there are other vehicles than a 529 plan, (Coverdell IRAs, trusts, etc), the reality is you will be taxed somewhere or your child will be penalized when it comes to the financial aid equation. If you already have enough money to put $15K in a savings account when your child is only a year old, the reality is that you will probably never receive any financial aid based on need.
The most difficult thing for parents today, including myself, is realizing that the tax/penalty rules can be changed at any time regarding these savings vehicles. While I don’t recommend stuffing money under a mattress, it’s probably best to talk to a financial adviser about how to manage your entire financial situation. For example, some say to put the money instead into equity in your home/your retirement and cash out later (with penalties, of course). This is money well spent. Again,it depends on what your other life goals are and what will make sense for your family.
However, I do agree with Harry and Anon that it’s best to save for your son’s college for a variety of reasons. At the end of the day, the top schools will always cost top dollar. A great, well-rounded education will never truly be free. While I believe smart, hard-working people will “make it” under most circumstances, it is a real act of love to sacrifice and increase the chances of securing the best possible opportunities for your child.
4/1/2024 3:05 pm
Thanks so much, Roark. Just to clarify, I’m not really in a position where I can sink $15k into a 529 annually; I just wanted to front load as much as possible and make a significant deposit right away.
I am fascinated by all the varying answers provided here. How can it be that there is no real consensus (other than on the general point that saving for college is a good idea)? Isn’t this a failing on the colleges’ part? If there’s such confusion among this audience, which (I think) consists of a lot of people with connections to colleges and universities, imagine what there must be out in the rest of the world …
4/1/2024 3:10 pm
I think the varied/hesitant answers are a sign that even the most well-educated parents are having doubts about the inevitability of college for the next generation. Either the cost curve bends significantly, or even affluent families start considering other options. I imagine other countries will find a way to capitalize on this, the same way they are creating ‘vacation’-hospitals for bargain-hunting Americans.
4/1/2024 3:19 pm
Also, you need to keep in mind your audience — a lot of Harvard professors. Harvard offers tenured faculty support for their children’s college education. Unless things have changed in the last few years, the deal is that faculty can take out 0-interest loans from Harvard to fund their kids’ education, and repay these loans over a fairly long time. So the incentives for tenured Harvard faculty to save for their kids’ education — or to invest in learning about approaches to saving — are limited. Not really the right group to ask about this issue!
(Also a clever way for Harvard to create incentives to stay at Harvard rather than moving to another university — if the structure of Harvard’s tuition assistance policy has minimized incentives to save, then moving to a university that has a different incentive structure can be painful.)