Are You Making These 6 Costly College Planning Mistakes?

Photo (cc) by Tax Credits

It’s a common piece of advice students hear year after year: Study hard so you can go to college and land your dream job. But how many discussions transpire in the home about the high cost of attending college?

Just like almost everything else in life, college comes with a price tag. While parents may not want to burden their children with figuring out how the expenses will be covered, the issue must be addressed at some point. And you must have a plan.

Here are six costly college planning mistakes you want to avoid:

1. Not discussing who is responsible

Have you determined who will foot the bill for postsecondary expenditures? Instead of playing the guessing game with your children, prevent conflicts that are bound to erupt from a lack of disclosure.

Your child’s expectations about your contributions may not match reality. In a recent survey, T. Rowe Price found, “Twenty-nine percent of parents say they expect to pay for most or all of their kids’ college costs, while 53 percent of kids who were surveyed said they expect their parents to pay for most or all of their schooling.”

It’s completely understandable for spouses from varying backgrounds to have different viewpoints on who should foot the bill, but what matters is that the two of you get on the same page and then discuss it with the children.

2. Stashing funds in a traditional savings account

Have you been stashing away funds in a savings account with a measly interest rate of, at best, 1 percent? If so, now’s the time to consult with a reputable financial adviser to evaluate and enroll in a college savings plan that will best suit your needs.

Stuart Ritter, senior financial planner at T. Rowe Price, told Forbes:

The idea that parents think a savings account is better for college than a 529 plan is akin to a retiree believing a savings plan is better than a 401(k) or IRA. They are missing out on financial opportunity.

Going the extra mile to set up a college savings plan may seem like a headache, but it’s definitely worth the hassle and will make your money work even harder for you. (See: “Everything You Don’t Know About 529 College Savings Plans.”)

3. Ignoring inflation

Because the cost of college has been increasing at a pace far higher than the rate of inflation, you must ensure that whatever plan you choose will generate a large enough return to keep up with those inflating costs.

Unfortunately, I witnessed the looks of despair on students’ faces each semester during my stint as a governmental accountant, because they couldn’t understand why, even after their parents had saved up for many years, their stash still wasn’t sufficient to cover their expenses.

4. Compromising your nest egg

The power of compounding interest works well in both college savings and retirement plans, so it may be tempting to stash away any residual funds while your children are young in order to fully fund their college education.

However, you can always borrow for college, but you can’t borrow for retirement.

If you want to be working well past retirement age, put the kids’ education first. (And if you happen to stumble across a scholarship program that covers the cost of living during retirement years, let me know.)

5. Delaying the process

If you’re waiting on that one big break — an inheritance, a risky investment, or a child who’s a brilliant scholar or has NFL-level athletic ability — to cover the costs of college, you may find yourself out of luck when your children reach the age of majority, and wishing that you’d used better judgment.

Remember, the power of compounding interest will be in your favor if you invest your funds wisely.

6. Not understanding how 529s work

Because 529s are among the most popular college savings plans, let’s take a closer look at some of the most common mistakes that savers make, according to LearnVest:

  • Failing to read the fine print. The types of 529 plans vary by state.
  • Spending the money on expenses that aren’t allowed. The money can’t be used for some college-related expenses.
  • Using the plan as a piggy bank. Withdrawing funds early for emergencies will trigger taxes and a penalty.
  • Missing out on free rewards. Credit card programs like Upromise offer perks to 529 account holders in the form of cash-back deposits on select purchases.

Whether you decide to establish a 529 account or some other college savings plan, it’s important that you get started sooner than later to give that investment time to grow.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Reasons You Should Not Claim Social Security Early
7 Reasons You Should Not Claim Social Security Early

The sooner you claim your Social Security retirement benefits, the more you — and perhaps also your spouse — stand to lose. Here are the stakes.

70% of Older Adults Botch This Basic Retirement Question
70% of Older Adults Botch This Basic Retirement Question

Can you answer this fundamental retirement income question?

8 Ways to Slash the Cost of Homeowners Insurance
8 Ways to Slash the Cost of Homeowners Insurance

Reviewing this critical insurance policy takes a little effort, but it pays off big.

14 Products That Keep Foods Fresh Longer
14 Products That Keep Foods Fresh Longer

We’ve rounded up innovative Amazon purchases to lengthen the life of your favorite foods and beverages.

15 of the Fastest-Growing Jobs Today
15 of the Fastest-Growing Jobs Today

Times are tough, but these career fields are thriving.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

The Next 5 Groups Who Will Get the COVID-19 Vaccine
The Next 5 Groups Who Will Get the COVID-19 Vaccine

The CDC has unveiled a schedule that likely will determine who gets the next doses.

Am I Eligible for My Mother’s Social Security Benefit?
Am I Eligible for My Mother’s Social Security Benefit?

Can an adult daughter tap into her late mother’s benefit?

11 Generic Products You Should Buy at Costco
11 Generic Products You Should Buy at Costco

Not all generics are worthwhile, but these are among the best from Costco’s Kirkland Signature brand.

8 Tips for Retiring Comfortably on Social Security Alone
8 Tips for Retiring Comfortably on Social Security Alone

It’s never too early to start learning how to live well while living on less.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

This Surprise Factor Can Raise Your Risk of Dementia
This Surprise Factor Can Raise Your Risk of Dementia

Nearly half of U.S. residents may face this threat.

Organize Your Home With These 10 Thrift Store Finds
Organize Your Home With These 10 Thrift Store Finds

Resolve to be clutter-free in 2021 with these secondhand purchases.

This Gas Station Scam Is Victimizing More Drivers
This Gas Station Scam Is Victimizing More Drivers

For the second straight year, a growing number of Americans believe they’ve fallen prey to this scam.

11 Laws You Could Be Breaking Without Knowing It
11 Laws You Could Be Breaking Without Knowing It

Seriously? Fibbing about the weather is a crime? This and other little-known legal traps await the unwary.

These Are the 3 Best Used Cars You Can Buy
These Are the 3 Best Used Cars You Can Buy

These vehicles boast reliability, safety and long-lasting value.

6 Legal Documents Retirees Need — but Don’t Have
6 Legal Documents Retirees Need — but Don’t Have

Few retirees have all of these documents that are crucial to their golden years — especially during a pandemic.

13 Things Seniors Can Get for Free — or Almost Free
13 Things Seniors Can Get for Free — or Almost Free

There are many ways to get cheap or free services and goods after reaching a certain age.

Internet Providers Can’t Charge You for This Anymore
Internet Providers Can’t Charge You for This Anymore

Starting this month, your ISP no longer can bill you for this fee.

9 Small Expenses That Are Bleeding Your Budget Dry
9 Small Expenses That Are Bleeding Your Budget Dry

Keep more of future paychecks by eliminating these budget-busting unnecessary expenses.

15 Painless Ways You Can Cut Costs in 2021
15 Painless Ways You Can Cut Costs in 2021

Follow these tips to save, so you’ll have money for things that really matter.

The 4 Best Things to Buy in January — and 4 to Avoid
The 4 Best Things to Buy in January — and 4 to Avoid

As a new year dawns, deals abound for some types of products. In other cases, it pays to wait.

11 Huge Retirement Costs That Are Often Overlooked
11 Huge Retirement Costs That Are Often Overlooked

Does your retirement budget account for all of these costs?

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.