pay the way
be prepared
COLLEGE IS EXPENSIVE.
WHAT’S YOUR PLAN? By Dave Ramsey
Now that student loan debt exceeds credit card
debt in America, you might feel like you need to
do anything and everything you can to avoid going
into debt to pay for your kid’s college. You won’t
hear any argument from us about your commitment to avoid debt, but not all college savings
options are created equal. So doing anything and
everything could actually prevent you from reaching your goal.
pre-pay anything, the return on your investment is equal to the
inflation rate for that item. So, for pre-paid college tuition, your
return is about 8% per year. As we pointed out before, you can
do better with an ESA and good growth stock mutual funds.
DO: Consider opening a 529 plan, especially if your income
As you build your college savings plan, keep these dos and don’ts
in mind:
is too high or you need to save more than an ESA will allow. But
choose wisely! Some of these state-sponsored plans perform no
better than bonds or pre-paid tuition. Make sure your state’s 529
plan is “flexible,” meaning you can choose the type of fund you
invest in and the amount you invest in each type, and you can
move that money from one fund type to another.
DON’T: Save for college using insurance. Never, never
DO: Apply for all the scholarships you can find. Tons of
save money inside an insurance policy like the Gerber GrowUp plan, which is simply whole-life insurance. These plans are
expensive and rarely perform as projected.
DO: Save money in an Education Savings Account, some-
times called an Education IRA. You can contribute up to $2,000
per year per child if your annual income is less than $200,000,
and your money grows tax free