4 Costly College Fund Mistakes

By saving for your child(ren) early on, you can help offset the cost of higher education. Here are 4 costly college fund mistakes parents often make.

Aside from saving for retirement, saving for your child’s college is probably one of the most expensive things you will do if you have kids.

 As parents of 5, one of the first things we hear the most when we get together with family or friends is a mixture of smugness or sorrow:

They might be cheap now, but wait until they all start college.

Or.. “you have no idea what you are in for in a few more years when they all go to school.”

We know college is quite a large expense, in fact.. we started planning the day they were born, and we contribute to their funds monthly. 

Will our children go to college? That we don’t know – but it’s worth the effort anyways.  Considering most children don’t have a plan for college and rely on financial aid (also known as student loans), I have always taken the direction of starting them off in a way that helps them stay out of debt, not get into debt.

We are the only parents in our family, on both sides, who believe in our approach to starting early.  We have entertained lots of reasons “not” to save from both sides of the family.  In the end, I feel that at least our children will have the option for college if they decide.

If you are saving for your children via college fund, that’s wonderful – high five!  It’s not easy to make that commitment to something so long term. It’s not easy to have that long term vision when there are so many short-term distractions.

4 Costly College Fund Mistakes Parents Often Make

It goes without saying that the price of paying for college can be decreased if you make the right decisions.  Here are four 4 costly college fund mistakes that parents often times make when saving for their kids.

1. Not starting early

It’s smart to think about your child’s college when they are newborns – or not long after.  Don’t put it off to the point that you start thinking about it when your child hits their teenage years, as time won’t be on your side.

It’s common to put it off, assuming your child will get a scholarship, use loans OR, because you assume they won’t go to college. But why not plan ahead and take advantage of putting away – if you can? 

You do not have to wait until your child is born to start a 529 plan.  You can make yourself the plan’s beneficiary then change that beneficiary when your child is born.  We did that with our first child.  We were then able to change it soon after she was born and had her Social Security Number.

2. Loaning against your 401K to pay for your child’s school

Many people take a loan from their 401K to pay for their child’s school. That’s never a good idea because it could possibly disqualify you from the matching funds at your place of employment.

Not to mention that at some companies, loaning from your 401K requires you pay that loan back within 60-90 days after leaving that place of employment.

3. Not checking the account often

It’s important to open a 529 plan, but it’s equally critical that you check it periodically too.  Some 529 plans allow pre-set portfolios with an age based option.  These fund start quite aggressively and taper off to a moderate level as the child gets older. If you aren’t going to be able to rebalance your 529 plan annually, then try to get into an age-based portfolio to ensure you are adjusting your portfolio often.

4. Stopping the 529 plan when your child starts college

For many parents, once the child hits college, contributions come to a screeching halt. In reality, the 529 plan doesn’t necessarily need to stop.  The child can continue to earn tax free money while their son or daughter are attending college. That money can be used for future semester expense.

By eliminating these costly college fund mistakes, your children will have a greater chance of saving as much as possible towards their higher education.

By starting a savings plan early, you can help reduce that burden of high debt that they might have from paying for their education.  

And while not everyone may agree that it’s the parents responsibility, it’s always wise to remember that it’s easier to save now than to loan money later.