14 Mistakes to Avoid When Saving for College

College may feel far away. But you have less time to save than you think.

14 Mistakes to Avoid When Saving for College

Paying for college is expensive.

Most parents worry about it, but many stash their concern for another day because it feels complicated and overwhelming — and immediate expenses feel more pressing. But with tuition and fees rising every year, it’s likely to be the biggest cost behind your mortgage. And you have less time to save for it than you do for retirement.

That doesn’t mean you need to save the whole amount. Paying for college can involve multiple streams, including scholarships your child might win, federal student loans, your child’s earnings during college, pulling from cash flow, and, yes, savings. Having dedicated savings lowers the stress of the tuition bills when they arrive.

Here are 14 mistakes that keep people from getting started or from saving the most effective way.

You Succumb to Paralysis

According to a recent study by ScholarShare 529, California’s state-sponsored 529 college savings plan, 42 percent of parents feel nervous just thinking about paying for college. Other common emotions: depressed (18 percent), terrified (19 percent) and powerless (20 percent).

These feelings hinder families from starting any kind of savings plan, says Linda English, senior director at TIAA Tuition Financing, Inc., which manages ScholarShare 529. They’re less tied to income than you might think.

You Believe You Need a Financial Advisor

You don’t.

You can save on your own, although having an advisor in your corner might be nice. But nearly every state offers a state-sponsored, tax-advantaged 529 plan — a good place to start for most families — and you’re not limited to your own state’s plan. Even “direct-sold” plans, which usually have lower fees, offer free guidance via customer support.

“We’ve done some things on the ScholarShare 529 application to help pull parents through the process by highlighting the investments they might want to choose. Age-based portfolios make investing easier,” English said.

Find out if your state’s plan is “direct-sold” or if you are required to use and pay for an advisor, and analyze required fees.

You Avoid Talking About College Philosophy With Your Partner

Everyone comes from a different college experience, whether they didn’t attend at all, worked their way through, or were fortunate to have parents pay all the bills. These experiences shape our values around how and if we pay for our children’s college, says Nannette Kamien, CFP, a college-focused financial adviser and owner of California-based Inspiration Financial Planning.

“When I do college planning, I start with understanding where parents are coming from individually,” Kamien said. “Even if the parents had the same experience getting through college, their philosophies about what to do for their kids might be very different.”

Parents need to tackle their beliefs early about who should pay for college so they can develop a plan.

You Don’t Research the Best Ways to Save

Most people spend more time researching a car or a house purchase than they do the financial side of college.

Popular savings vehicles include 529 plans, Coverdell ESAs and Roth IRAs, and each has its own rules. For many families, 529 plans are the easiest and most tax-efficient way to save, but according to a 2018 Edward Jones survey, just 29 percent of people have heard of them.

Parents who research how to save feel more confident about paying for college, English says. “Sixty percent of parents who are nervous about paying for college spent less than an hour over the past three months looking at their options,” she said.

Do some reading at savingforcollege.com to learn about different ways to save. Bonus: you’ll reduce your anxiety.

You Put Money in a Plain Jane Savings Account

Saving in a low-interest savings account is a common way to save. It’s also a sure way to eliminate any return on investment because you won’t reap the growth you need to keep up with college inflation, Kamien warns.

Make a vow not to be intimidated by “investing.”

You Believe You Need to Start Big

One of the scariest things you can do is use an online calculator to crunch how much you need to save (cue terror).

The trick is to start small, experts say. Anything is better than nothing because whatever you save is money your student doesn’t have to borrow. (Many 529 plans require as little as $25 to get started.)

Some experts recommend the one-third, one-third, one-third approach for saving: save one-third, plan to cashflow one-third (pull from regular income), and have your student borrow one-third. Look at your budget and choose a manageable amount to begin saving. You can always change it later.

You Don’t Start Early

When kids are younger, most families are strapped with diaper, daycare and braces bills.

“The lack of immediacy around a college savings decision is a detriment to starting,” Kamien said. But the early years are the most important years for contributing to an education savings vehicle to gain the benefits of compound interest.

“Even if you stopped contributing after five years and just let it grow, you’re going to have more money than if you only contribute the last five years before your kid goes to college,” Kamien said.

But do remember it’s never too late to save.

You Don’t Reroute Retired Baby Expenses

One of the best ways to find money for college savings is through retired expenses like diapers, daycare and other costs associated with the first years of parenting, but it can get eaten up by unplanned spending.

Once you’re finished with baby- or preschool-related expenses, channel that money into your college fund.

You Don’t Create a Dedicated College Savings Account

Lumping college funds in with your emergency fund and your vacation stash makes it vulnerable.

“We’re finding that those accounts get liquidated for other things when they’re not set aside specifically for college,” English said. An additional benefit of a dedicated account: your child will be up to seven times more likely to attend college, she says.

You Believe 529 Plans Are Inflexible

These investment vehicles can be used for qualified expenses at two-year colleges, four-year colleges, trade schools, vocational programs and graduate school.

You can use the funds to pay for tuition, room and board, books, mandatory fees, computers and other qualified education expenses. If your child earns a scholarship, there are safeguards for that, too. If your student doesn’t go to college at all, you can change the beneficiary to a sibling, yourself, an extended family member, or save it for later if your child changes her mind.

There’s no time limit with these accounts. Research the guidelines on 529 plans with an open mind.

You Put Money in a Custodial Account

Every family’s financial profile is different, but most families will be hurt on the financial aid forms by these accounts. They count as the child’s asset, and you’ll be expected to contribute 20 to 25 percent of a child’s assets to college (in contrast, parents are expected to contribute just 5.64 percent of their assets).

Plus, in many states, the age of maturity is 18 and once the child is old enough, that money is theirs, Kamien says. Legally, you can’t tell them they have to use it for college. Consider moving these funds into a custodial 529 account.

You Believe Saving Will Hurt Your Kid's Chances of Receiving Financial Aid

“By far the biggest factor used to calculate financial aid is parent income,” said Debbie Schwartz, founder of Road2College, a website about paying for college.

Not saving doesn’t mean you’ll get financial aid — or enough financial aid. The FAFSA generally calculates 22-47 percent of your income into the “expected family contribution” and parent savings at 5.64 percent. On $10,000 of savings, that’s $564 toward college. Learn about how financial aid forms calculate financial aid.

You Don’t Ask Family for Help

Many parents feel uncomfortable discussing college goals with their own parents, and some grandparents want to help but don’t say so to their adult children, experts say.

As a result, no one talks about the financial elephant in the room. But some 529 plans and The Gift of College gift cards promote easy gifting in lieu of more toys at birthdays and holidays.

Clarify your goals for college and bring them into the extended family conversation.

You Don’t Discuss Money With the Kids

Too many families don’t loop their child into the financial conversation about college. By high school, it’s important to have a sense of what you can contribute and talk with your kids about it so they can start planning themselves — by earning good grades for scholarships and planning to work and save.

“You also have to plant the idea that you might say no to a college if you can’t afford it,” Schwartz said. “What’s heartbreaking is families often don’t have a fallback school they can actually afford.”

Be honest with them — and yourselves — about what you have saved.