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Sunday, July 24, 2005

How the hell am I supposed to ever send my kids to college?

The Detroit Free Press:
All I can say is that I'm thrilled my son is 7. I've got 11 years to pump up his college fund. No more McNuggets or Transformers robots.

But parents who have a child or two in high school have got to be real edgy.

What do you do if your child's heading for college in four years? Some of the state's universities have raised tuition this year by more than 10%. What if they raise tuition another 10% next year? And the next?

What do you do? Stop eating? The brutal reality: The cost of college tuition would double in six years if a college raised tuition 12.3% each year forward. (University of Michigan tuition and fees will go up 12.3% this fall for in-state freshmen.)

Could you double your money in six years? OK, if you bought Google, you're in luck. But forget it otherwise.

"This really means you've got to look for cuts in other areas of your personal spending," said Bob Bilkie, president of Sigma Investment Counselors Inc. in Southfield.

Bilkie has three daughters. Amanda's a senior at U-M. Ashley's a sophomore at U-M. And Megan is a senior at Salem High School in Plymouth. She wants to go to U-M and later to medical school.

He'll feel a pinch. But he says he's been blessed with a good job -- and saved frugally. So he thinks he'll be OK.

Another cushion: His daughters have jobs -- and are required to save half of what they make for college extras.

"If they want to go to Starbucks, it's on their dime," Bilkie said.

What do you do if you've only got a few years to go?

•If money is tight, tell your child to consider a lower-priced college. People who don't choose U-M or Michigan State University can find jobs.

Excuse me, but F--- YOU! I'll be damned if my kids won't meet their potential because I can't bring home the dough. And by the way, U-M or MSU? Man, those are safety schools, not the ones to which I hope my kids will be aspiring. I want my kids going to private colleges with reasonable class sizes and better professors - those schools cost easily three times that of U-M. I know. I went to one.
•Forget about quick fixes -- and do not bet the college money on poker. Or stocks.

People may think they can make 10% a year on stocks. OK, remember 2000, 2001 and 2002, when people lost money?

"Equity returns are made up of home runs and strikeouts," said Fran Kinniry, principal for Vanguard Investment Counseling and Research in Malvern, Pa.

Kinniry notes: Stocks lost money one out of every four years if you look at returns from 1926 through 2004. Better short-term bets for money needed in the next five years or so: Bond funds, U.S. savings bonds or money market accounts.

•The Michigan College Savings Program may be a good option for a college 529 plan.

Savers who set aside money in the Michigan 529 can take a state income-tax deduction. All 529s aren't equal. Michigan taxpayers do not get a state income-tax deduction if they invest in other 529 plans.

•Consider the Michigan Education Trust, the state's prepaid college tuition plan. The plan is open to high school students. Enrollment begins Sept. 1. We don't know the price yet.

But if your child is in 10th grade, for example, I'd expect that you'd have to pay more than $8,750 to buy a one-year MET contract that would cover two semesters.

(I've set aside some money in the MET plan and the Michigan college savings plan. Yes, I have just one son and believe in saving for college. And we'll save more.)

•Should you plan to just borrow from your 401(k)?

I've learned to never say never, but boy, I wouldn't dream of taking money out of my 401(k) for my son.

Sure, my heart melts when I see that little boy's gorgeous smile, which is especially charming now that he's lost two front teeth. But he's not, repeat not, getting my 401(k).

Most parents shouldn't hand over their retirement cushion to cover a child's college education.

"There are other sources of money that people should look at first," said Stuart Ritter, a certified financial planner for T. Rowe Price, a mutual fund company based in Baltimore.

•Consider borrowing more money.

Take out a home equity loan, which can be tax deductible. Or a parent might consider a PLUS student loan.

Under a the federal PLUS loan program, parents can borrow money to cover any costs not already covered by the student's financial aid package, up to the full cost of attendance. So you can borrow plenty of money. PLUS loans have variable interest rates but won't go higher than 9%. The interest rate on the PLUS loan now is 6.10%.

Parents who have bad credit histories should look into a PLUS loan.

"You get the same interest rate and fee structure regardless of your credit score or history," said Martha Holler, a spokeswoman for Sallie Mae, the nation's largest provider of education loans.

If your credit history is bad, you will pay a higher rate for a home equity loan or other types of consumer loans. Not so with a PLUS loan.

•The student needs to work, look for scholarships and, yes, maybe, borrow more money.

A freshman this year can borrow $2,625 for a federal Stafford student loan. A senior can borrow $5,500. Current rate: 4.7%. But a student doesn't have to pay on the loans while in college.

Some Detroit News headlines from the past week:

Students fear tuition hikes

Wayne State hikes tuition 18.5 percent - University's board acts to compensate for an anticipated reduction in aid from the state

U-M, MSU fall tuition skyrockets - Incoming freshmen at the state's two largest colleges will pay about $1,000 more for classes

Northern Michigan increases tuition 9.8 percent


Anonymous Anonymous said...

So, I was looking at elite Culinary/Art schools across the U.S.
Somehow I stumbled across this and am glad I did so, for I found your insight interesting.
I am pretty much stuck when it comes to knowing what to do next- and wondered if by chance you wouldn't mind throwing out a few words of helpful advice for my current situation.
You see, it's been nearly 4 semesters out of high school and still no college.
I live in America and am perfectly capable, just haven't had the ambition- same story you hear often. Try not to be irritated and bare with me.
I just don't know how to get proper financial back up. My parent's didn't save one penny toward my college funds, nor have they offered any real advice on self-help. I just don't really know what to do, because as you mentioned relative to your own son, it is ridiculous that funds prevent potential.
I have some talents I could use for grants and what not-singing- but it's entirely too stressfull to worry about covering all the costs and THEN getting a well paying job so that I'm not up to my eyebrows in student loans until I'm 40.
Listen, I know we are strangers, and I know there is a lot of other information that is neccessary for giving specific advice, but generally- any words for me?

Thank you.

9/02/2008 06:52:00 AM  

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