Finance experts advise parents to start saving for their children’s college tuition right after birth

By JEFFREY STEELE, Special Advertising Sections Writer

Are you expecting a baby soon, and wondering when to begin saving for college? Experts in funding college educational expenses have your answer: The sooner you start, the better off you’ll be when it’s time for your offspring to enter the halls of academia.

“Time is a person’s best asset,” said Kalman A. Chany, New York City-based author of the 2005 edition of “Paying for College Without Going Broke.” “Contribute as much as you’re able when the child is young, so the money has time to grow.”

Chany recommends saving whatever you can each month. Avoid setting a goal of saving a specific monthly dollar figure for a specified number of years. That kind of savings objective tends to overwhelm many parents. The number they’ve set for themselves often appears intimidating, and as a result they save nothing, he said.

The strategy is doubly flawed, he said, because the amount many believe they have to save is higher than it needs to be.

“Often, those projections are based on having the whole amount when Junior arrives freshman year,” Chany said. “That’s not necessary.”

Mark Kantrowitz, publisher of Pittsburgh-based Finaid.com, a free website providing financial aid information, advice and tools, agreed. He said parents of newborns should eye current costs of the college they’d like their child to attend. The cost 17 years from now is likely to be three or four times as much.

“You don’t have to save the entire amount, only about a third of the total amount,” he said. “A college education will be paid a third from past income, a third from current income and financial aid, and a third from future income, meaning loans. So to set your goal for 17 years from now, simply plan on saving what a four-year education would cost now.”

Another issue is where to deposit your savings. One option is Golden State ScholarShare (www.scholarshare.com; [877] 728-4338), California’s Section 529 college savings program. Operating much like a 401(k), it’s a tax-deferred method of saving for college, Kantrowitz said.

Under current law, distributions from the plan are exempt from federal and state income taxes when the money is used to pay for qualified higher educational expenses, Kantrowitz said.

An added advantage of Golden State ScholarShare is it’s one of the state 529 college savings plans managed by Teachers Insurance and Annuity Assn. -College Retirement Equity Fund (TIAA-CREF). Plans managed by TIAA-CREF tend to be among the lowest cost 529 plans, he said.

Many families saving for their children’s college educations have chosen to become members of a program called UPromise. The largest non-governmental service helping families save for college, UPromise lets families build college savings simply by purchasing their favorite packaged goods, shopping at their favorite stores and dining at their favorite eateries.

“We’ve brought together a coalition of 400 leading companies — both retailers and packaged goods brands — that have agreed to contribute a percentage of the purchase price of families’ purchases back into the college funds of those families,” said Tom Anderson, chief executive officer with Needham, Mass.-based UPromise. Those companies include some of the biggest household brands, including McDonald’s, ExxonMobil, Procter & Gamble, Kellogg’s, Bed Bath & Beyond, Coca-Cola, SBC and Kimberly-Clark, he said.

In addition to their purchases working toward college savings, parents can ask other family members or friends to become members of UPromise, with their purchases also going toward the same college funds, Anderson added. UPromise also makes available a 529 college savings plan, the UPromise College Fund, through its partnership with the Vanguard Group. Parents can deposit their savings, the college funds they generate through UPromise membership, and the funds accumulated from friends’ and family members’ purchases through UPromise, into the UPromise College Fund. The fund allows them to choose from a variety of investment options that should help grow the funds through the magic of compound interest.

Joining UPromise is free. For more information, visit www.upromise.com or call (800) U-PROMISE (877-6647-3).

Whatever methods you choose, the best strategy is to “just start saving,” Kantrowitz said. “Save early and often, and save as much as you can.”

Jeffrey Steele is a freelance writer based in Chicago.

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