Is Saving for College a Bad Idea?

NO!  Saving for college is a good idea- and most times necessary to pay the college bill; especially if you don’t want to take out a bunch of loans.

Why Have I Heard That Saving for College Will Hurt My Financial Aid?

Your financial aid package is determined by your EFC or Expected Family Contribution.  This number, or amount of money a college thinks you can pay for a year of school is determined using information from your FAFSA. The FAFSA uses your family’s financial information to calculate your FAFSA.

If you choose to start saving for your child’s college costs the typical ways are through non-retirement accounts; most commonly 529s, UGMA/UTMAs, or pre-paid college plans.  The money you put into these accounts are factored into figuring out your EFC. Part of the EFC equation does look at your assets.

Then It Sounds Like I Shouldn’t Save Any Money so I’ll Have a Lower EFC!

In theory, yes- if you don’t have any savings you will have a lower EFC- but not by much.  While your assets are part of the equation, that money is a very small factor in the entire equation.  Your income plays a much larger and important role in your EFC calculation.

So My EFC is How Much I Will Have to Pay to Go to College?

Maybe, maybe not.  Your EFC is how much a college “thinks” you can afford based on your family’s financial information.  However some schools, actually a lot of schools will expect you to pay MORE than your expected family contribution.

If you haven’t saved any money then how are you going to pay what a school thinks you can afford? And if a school expects you to pay more than your EFC, where is that money going to come from? It’s a smart and fiscally responsible idea to have some sort of college savings set aside to avoid taking out too many loans and being burdened with excessive debt.

I’m Planning on my Child Getting a Full-Ride

While the dream of a full-ride for your child sounds amazing, in most scenarios it is just that- a dream.  Full-rides are few and far between these days.  Definitely take a look and see if it’s a possibility for your child, but don’t bank on it to cover a 4 year college experience.

Make sure you have a back-up plan; like some savings you can use to cover costs that aren’t covered by a scholarship. Best case scenario- you save money for your kid’s college and they get enough “free money” that you don’t have to use all of that savings!