An effective savings program for college is the most surefire way to plan and pay for higher education expenses. As Mark Kantrowitz from FinAid puts it, "It is cheaper to save money for college than it is to borrow money for college." But this is easier said than done.
Saving money for college is hard for many families when income is limited. If a family has barely enough money to pay for food or rent, saving for college no longer becomes a necessity. Even if a family begins to save money for college early, circumstances may change over time, preventing continual savings contributions. For example, if a family has no stable health-care coverage and someone gets sick, then money for college savings is rerouted to medical care.
But, surprisingly, even families with stable income do not reserve savings for college. It is not uncommon for families to have very little savings for long-term goals, whether for college or for retirement.
Ultimately, college savings programs depend on the parents. Students themselves have little ability to make any effective college savings efforts and must rely on their parents to follow through. Even if a student is able to pick up some extra cash waiting tables and mowing lawns, they are most likely old enough to be nearing high-school graduation, leaving little time for their own college savings to grow.
Considering that most average families are in no position to save, it became even more surprising for me as a financial aid officer when an average middle-class-income family would walk into my office with a tremendous amount of college savings allocated for the student. What was the magic behind this family's ability to save? How was it that they made it happen? What did they do? Why are they so special?
Part of my work in assisting students (and their parents) with the college funding process was to review a family's financial circumstances through the verification process. During this process, I was required to review tax and asset information of the family to confirm that it matched the data supplied on the FAFSA.
It was during these times that I got to meet a lot of wonderful people, and had an opportunity to ask a lot of questions. In particular, I got to pick the brains of parents who were able to make substantial savings with only modest income, and here is what I found out.
This takes discipline. When money is in hand, it is easy to spend it on whatever is in front of you, like the tons of consumer products available in the economy. What is hard is focusing money long term by saving it so it can grow into a viable asset in the future. Parents deal with this challenge by committing a set dollar amount from each paycheck to go to savings no matter what to ensure that savings continue to grow.
This is not to say that anyone cannot adopt this mind-set, but I was always shocked by the way some parents who are high-income professionals seemed to ignore savings altogether. High-income parents who do not save money for their kid's college leave the child in a tough spot because they will not qualify for any need-based financial aid, but may not be making high enough income to simply pay the whole bill outright. In these cases, the family must rely on financing where scholarships are not available, further driving up the real cost of college through loan repayment.