Principles Of Saving For College

Tips for the financially savvy parent.

Nearly all parents want to give their own children a leg up in life – and a big part of that process involves prudently saving for your child's college expenses. But there are some things to keep in mind, even as you save.

Your retirement security must come first

Many parents neglect themselves when putting money aside for college. But your child will probably be able to borrow money to attend college in a pinch – or get scholarships, ROTC or GI Bill assistance. Nobody is going to lend you money to live on in retirement. Make sure you are able to reduce all your debts except a mortgage, pay off credit card debts and adequately fund retirement accounts.

Don't skimp on insurance

Make sure you at least have adequate term insurance in place, and some protection against disability. If your employer doesn't provide it, you'll have to look to the individual markets.

Be careful with titling

If you transfer assets directly to your children, you may wind up reducing their eligibility for need-based financial aid. This is because under federal rules, financial aid officials calculate need based on the "expected family contribution." Students are expected to contribute a much higher percentage of their assets and income toward their own education than their parents are. You may want to hold assets in a grandparent's name, or use trusts to minimize the expected family contribution, and thereby maximize your child's eligibility for financial aid.

Be careful with UTMA/UGMAs

Uniform transfer/gift to minors act rules usually transfer assets to a child's control as soon as he or she turns 18. A few jurisdictions establish an age of majority older than that for these purposes. But the principle remains the same. Many young people don't have the maturity at that age to handle large sums of money responsibly, and the government will expect your child to use a large portion of that money for college to reduce need-based aid eligibility commensurately.

Learn about Northeast Credit Union's College Savings Accounts here!