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Ok. you caught me. In fact, most of the time not saving for college is a bad idea. Sometimes I meet parents who tell me they are not saving for college in order to increase their child’s chances of getting financial aid. The idea is that having money makes college and the government figures you can pay for college and therefore don’t need any aid. This is true, to an extent. If you have millions in the bank I can’t take my tax dollars and pay for your kid’s college so you can spend money on a first class ticket to Vail.
However, assuming that saving for college will make financial aid worse is short-sighted and makes a number of assumptions. The first is that financial aid will be available for your child. We don’t know what the government will have in aid in 5, 10, or 15 years. You should also realize that most financial “aid” is in the form of loans. You may very well end up creating a situation that burdens your children with huge loans they will now find it difficult to pay back in exchange for a slightly better lifestyle. I wouldn’t call it good financial planning.
Another reason it doesn’t hurt to save much when it comes to aid is because the government knows you have more to save for than just college. If you save in your name instead of your child’s (including 529 college savings plans and Coverdell ESAs), less than 6% of savings in those account types will count against financial aid. Yes, it counts against you a little bit, but not as much as having 20% of the property in the child’s name.
There’s a good reason not to save for college: You have more important needs for that money. Note I don’t say “if you can’t afford it.” This is because it is often easier to determine affordability by looking at whether there is money left at the end of the month. Most of us find ways to spend any money we have available. What we spend it on may be a true vital necessity, but it may also be a dubious desire.
So what can be a priority over college savings? As a retirement planner, I recommend setting money aside for the times when you can’t work. Of course, roti, kapda and makan also seem like necessities. But let’s be clear: You can spend more than $20, $40, or even $100 on blue jeans. I’m thinking that $100 pair doesn’t count as a necessity.
In the end though, some people won’t be able to save for college without shortchanging themselves in other important areas. He’s not selfish, he just is. But for the rest of us, this is an area we should focus on.
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