3 Reasons Not to Save for Your Child's College Fund
Since I had my son, I have often heard from family and friends that college is going to be extremely expensive, and it is best to start saving now. After much research I decided that I wouldn't put too much into a college fund. This may be against the usual advice of saving for the future, but here are some sane reasons why parents should not pump too much money into their children's college funds. (See also: How to Save Money for College)
1. A Large College Fund Can Lower Financial Aid
This is mostly due to how financial aid offices calculate need. Most public schools use the FAFSA, and many private schools use a combination of the CSS/PROFILE and their own formula. Regardless of the method used, generally parents and students have to list their assets, and more savings means less need. So it is actually possible for two families with equal incomes to receive different amounts of financial aid, and the family with less savings would receive more. Retirement accounts are usually excluded from these calculations, so it is to the parents' advantage to sock away more for retirement rather than a child's college fund. The calculations also usually count a student's assets fully, so if you put a college fund under your child's name, then that would hurt your financial aid numbers as well.
2. Working During College Can Be Beneficial for Students
Research from the U.S. Department of Labor (PDF) showed that young adults who had to work and pay for at least part of their college actually did better in school than those who did not have to work. This is not that surprising since the kids that had to work and study at the same time are more invested in their education and are generally more disciplined to be able to manage work and school. Those who had to work probably valued their education more than those who didn't. Additionally, these students who had work experience usually fare better after they graduate in their job searches because any job experience is better than none in the eyes of employers.
3. College Isn't the Right Choice for Everyone
There are currently many college graduates with no marketable skills who are not doing better than those who pursued an apprenticeship in a trade. If parents put away a lot of money in a college fund like a 529 plan and later find that their children no longer wanted to go to college, then they would have to take a tax penalty to take the money out for other uses. I think it is best to wait and see what a child's pursuits and talents are before deciding on that college is the best path.
My son will be college bound in about 15 years. I don't yet know what he will do, but if he decides to go to college, we will definitely support his decision. For now we are putting in $100 per month into a 529 account. In 15 years it will grow to a significant amount, but it probably will not be enough money for four years of college given the rate of increase in higher education costs. However, we're not that worried about it because ultimately I think that young adults should start taking responsibility and shoulder at least some of the costs of college. I think the whole point of raising and educating children is so that they can be independent and survive on their own, and it would be good for my child to learn that as soon as he is able.
What do you think? Are you currently saving a lot for your children's future college costs?