Gail Perry-Mason made the mistake of dipping into her retirement savings to send her first child to college years ago. Now, the successful investment expert and financial coach works overtime to help others avoid making the same mistake.
Whether your child is a tot or a teen, you should be putting away money for his or her higher education, says Perry-Mason, a 52-year-old mother of three sons. The founder of Money Matters for Youth in Detroit also urges students to apply for scholarships and grants to help pay for rapidly increasing tuition costs.
The College Board reports that a “moderate” college budget for an in-state public college for the 2014–2015 academic year averaged $23,410, and a moderate budget at a private college averaged $46,272.
“Parents need to start saving wherever they are in the process,” Perry-Mason told NewsOne. “Children can get scholarships and we as parents and older adults cannot in our retirement, which is why we should never take from our 401K.”
She used a mix of savings and scholarships to finish putting her sons through college. Brandon, 30, graduated from Wharton Business School; Dexter, 24, recently received a master’s degree from Georgetown University; and Scott, 21, is a senior at Lake Forest College.
Here are some tips to help parents and children pay for college tuition and expenses:
Save, save, save: If it takes a village to raise children, it takes a village to send them to college, says Perry-Mason. “It should be a family affair when it comes to education,” she said. “Just like aunts and uncles come together for proms and birthdays, college savings should also be a family affair. It should not just be on one person, because college tuition is so expensive. And just as we have Christmas savings accounts, families should have education savings accounts.
Another trick is to empty change from your purse and wallet and take it to make a deposit as soon as you reach $25 to $50. That’s not taxing. “We have a lot of families living paycheck to paycheck, so you don’t want saving to be stressful.”
“Start early if you can, or start exactly where you are,” she said. “Once you read this on NewsOne.com, you should start saving. You can start at $25 a month and gradually increase the amount, but start saving.”
Establish a bank trust: Trust accounts allow trustees to authorize bank payments and deposits for a minor’s education, among other things. “It’s great to say my child has a trust instead of just saying in God we trust,” Perry-Mason said.
Invest in a 529 savings plans: These are tax-advantaged investment plans designed to help parents and families save for the future higher education expenses of a designated beneficiary. The plans are named for Section 529 of the Internal Revenue Code and are run by state agencies and organizations.
All withdrawals from 529 plans for qualified education expenses will remain free from federal income tax. There are two types of plans: prepaid tuition plans and savings plans. There are currently 13 Prepaid Tuition Plans (sometimes called guaranteed savings plans) offered by 12 states and one not-for-profit organization, which allow for the pre-purchase of tuition based on today’s rates and then paid out at the future cost when the beneficiary is in college, according to College Savings Plans Network.
Take out a PLUS loan: PLUS loans are federal loans, set at a 7.9 percent fixed rate, that graduate students and parents of dependent undergraduate students can use to help pay for college or career school.
“As parents, we cannot afford not to save for our child’s education,” Perry-Mason said in closing. “It’s one of the best investments we can make. The returns on investing in our children are priceless. We should also teach our children financial literacy, meaning the importance of saving, investing, and wise spending. If they can save for a video game, they can save for college.”
Consider an Education Savings Account
In addition to Perry-Mason’s recommendations, you might look at this option: Coverdell Education Savings Accounts are like 529 savings accounts, except they have annual contribution limits of $2,000. The accounts are designed for parents whose modified adjusted gross income for the year is less than $110,000. Contributions are not deductible, but amounts deposited in the account grow tax-free until distributed. Urban Partnership Bank in Chicago is among the many banks that offer this type of account.
Perry-Mason is founder of “Money Matters for Youth,” a one-week camp that teaches children financial literacy, instructing over 6,000 young people in the Detroit-Metro area. She has also mentored more than 25 young women who are now professionals in the financial industry. She is co-author of Girl, Make Your Money Grow, with Glinda Bridgforth.