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How to evaluate college savings programs: Part 1

By - Last modified: March 30, 2012 at 12:04 PM

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It seems that in America today, an increasing number of kids believe they’ll need to go to college to have a more financially successful future.

Seventy percent of students and parents strongly agreed college is essential for earning more over the course of the student’s future career, compared with 59 percent in 2010, according to a 2011 Sallie Mae survey.

In correlation to these opinions, 2009 (most recent data available) saw college enrollment hit an all-time high.

With tuition costs averaging between $33,000 for a state school and $119,000 for a private institution, what worries me as a parent is how I’m going to pay for my kid’s education. Many of my clients have the same concerns, and as a financial planner, I’m forced to investigate the issue on a regular basis.

Families are pitching in more and using their own savings for tuition bills, according to the report. It goes on to say that while student borrowing is down, it still accounts for 9 to 15 percent of funding. Our total debt for college loans in this country will exceed $1 trillion this year. This averages out to $25,000 per student graduating in 2010, up 5 percent from 2009. That’s a lot of money that will be required to be paid back, as student loans can never be released through bankruptcy.

So in the end, will that high-priced education really help our children? Is it truly giving them an advantage over the competition? If we think it will, should we as parents be saving more now so our kids are not enslaved to a system of repayment almost immediately upon graduation?

Every parent has two choices when it comes to college: Help out or opt out. Since it seems more parents are willing to help out, it’s important to understand how best to do so.

Regardless of the level that parents plan to help with tuition, saving earlier is often the best strategy. Whatever the strategy, it will certainly make the process easier. As with any investment, the time value of money and compounding interest will go a long way in growing your savings.

So what is the best way to start?

There are plenty of specialized college savings plans out there. There are the 529 plans, UTMA accounts, Coverdell and life insurance policies, just to name a few. Each type of program has its own strengths and, of course, its own conditions.

Stay tuned over the next three weeks, as I cover each of them in depth.

Joe Wirbick is president of Lancaster financial services firm Sequinox and specializes in retirement planning and distribution. This allows him to concentrate on developing strategies that help address the unique issues that confront retirees and those approaching retirement.

Tax advice provided for informational purposes only. Tax returns should be completed in conjunction with a qualified tax professional. Sequinox Financial and JWC/JRAG do not offer tax advice and are not affiliated. Mr. Wirbick is an Investment Advisor Representative offering advisory services through Jonathan Roberts Advisory Group and securities through J.W. Cole Financial, Inc. Member FINRA/SIPC. The opinions expressed are those of Mr. Wirbick and based on information believed to be reliable but not guaranteed and subject to change and do not necessarily reflect the position of JWC/JRAG.

Write to the Editorial Department at editorial@cpbj.com

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