Education Savings Myths

College costs and savings options got you confused - set the facts straight

10/09/2014

Outside of a house, a college education is probably the most expensive purchase your child will ever have to make. If you’re like most parents, you want to help make sure your child has the best educational opportunities available, and you’re looking into savings plans to help with higher education costs.
 
Most parents are also confounded by some recurring myths about education savings that may cause them to question certain savings vehicles, costing them and their children in the long run. Read on to learn the truth about two top myths.
 

Myth #1: Saving reduces aid

 
By far, the biggest and most damaging myth out there is that saving for higher education costs can limit the amount of assistance your child will receive. The more assets you have when it comes time to apply for scholarships, grants and government loans, the less you’ll be receiving in terms of free or cheap money—or so the thinking goes.
 
That’s just plain old wrong, according to the experts. A college savings account held by the parents will have a minimal impact on aid eligibility.
 
"Less than 4% of dependent students have any impact on aid eligibility from parent assets because most parent assets are sheltered," says financial-aid expert Mark Kantrowitz. "Even if the money counts against you, the worst-case impact is a reduction in aid eligibility by at most 5.64% of the asset value. That means every $10,000 in parent assets reduces aid eligibility by at most $564. That still leaves you with $9,436 to spend on your child's education."
 
Other assets, such as real estate that isn’t your primary residence, can actually put a bigger dent in your child’s eligibility. Assets in your child’s name are also a mistake; a savings account held by the student will reduce eligibility by 20% of the account’s value (a $2,000 loss in aid for every $10,000 saved), Kantrowitz warns. So keep saving, and keep it in your name.
 

Myth #2: Private schools mean too much debt

 
You probably want to pay for as much of your child’s schooling as you can through saving rather than borrowing. And if you’re a price-tag-only shopper, the choice between a public and a private university seems pretty clear. A look beneath the surface of some private schools paints a different picture, though.
 
Merit-based scholarships, needs-based financial aid and a track record for efficiently turning freshman into job-holding graduates can make the hefty upfront price of a private school well worth it in the end. Not only are steep discounts often earned and awarded, but also post-graduation employment and salary considerations can make certain private colleges a smart financial decision with payoffs almost immediately.
 
"If you can attend a good school that helps you graduate on time with great skills and contacts, borrowing can be worth it," says higher education maven Lynn O’Shaughnessy. Not all schools are equal in this regard, so do your homework, but depending solely on savings can actually be a financial no-no in this instance.
 
The more you save the better off you’ll be, yet cost vs. savings shouldn’t be the only calculation you make when helping your student pare down school choices. You and your child need to look at all your options, for funding and for education, before laying any money on the line and be sure to contact your financial institution for all of your college saving needs.

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