It’s one piece of advice I’ve heard from every college savings expert: It’s never too late to begin socking away money for your child’s college education. Various strategies can get you on track to ease the burden of paying for college and minimize costs, the experts maintain.
Two acquaintances of mine, Ingrid and Phil, are perfect examples of that line of reasoning. They’ve used a combination of techniques to stay within their financial means while sending their two sons – Luke and Jerod – to the University of Michigan.
Two strategies were central to their approach: both Luke and Jerod first took community college classes – which cost less than those at four-year institutions – and Ingrid and Phil purchased 529 prepaid tuition contracts from the Michigan Education Trust, or MET for short. MET, which is administered by the Michigan Department of Treasury, allows families to lock in future tuition costs at today’s prices.
What’s interesting to me is that Ingrid and Phil didn’t buy the MET contracts when Luke and Jerod were newborns or toddlers. They made the purchases when both boys were teenagers.
Now, we all know that the sooner you can start saving for college (or anything, for that matter), the better. That approach allows you to take advantage of the power of compounding or, in the case of MET contracts, lock in costs at the lowest possible level before contract prices rise along with tuition.
That’s the theory, anyway. Real life isn’t always so simple. As a young couple with two young children and other financial commitments, “we didn’t have enough money to save for college back then,” Phil says.
I’m sure many of you are now in a similar situation. But fear not. Like Ingrid and Phil, you can adapt to your particular circumstances.
Ingrid and Phil were committed to putting their sons through college and ensuring they weren’t saddled with student loan debt upon graduation. “We didn’t want to put it all on them,” Phil says.
For Luke, they bought two years’ worth of tuition when he turned 17, which they used to cover his junior and senior years at U-M after he spent two years at a community college.
MET purchase a “no-brainer”
Although they bought the prepaid tuition only a couple of years in advance, they were confident that it was a smart financial move, considering how tuition rates had steadily risen every year. “It was a no-brainer, really,” Phil says. “We knew tuition was going to keep going up and cost more in a couple of years, so why not lock it in when we could?”
Meanwhile, they paid for Luke’s two years of community college tuition out of pocket, and then recouped much of the cost by claiming the American opportunity credit on their federal tax returns.
Luke, who studied psychology, earned his bachelor’s degree from U-M in December 2015. He’s now working and preparing to return to school to secure a master’s degree in computer science.
Ingrid and Phil followed a similar strategy for Jerod, although they bought three years’ worth of MET prepaid tuition on his behalf when he was in his early teens. After taking general education prerequisites at a community college, Jerod is now in the U-M business school.
Although they didn’t immediately begin saving for their sons’ college education, Ingrid and Phil are ultimately satisfied with the approach they took.
“Going to community college really saves money,” Phil says. “We knew they’d both eventually go to a four-year college, but we didn’t know where, so they just started out at community college.
“And buying those MET contracts really paid off for us,” he says. “I don’t have a real hard number, but the savings in tuition costs were pretty significant.”
By the way, MET is celebrating a pretty significant milestone this year – its 30th anniversary as the nation’s first prepaid tuition program. As a lifelong Michigander, I think it’s kind of cool that the state was a pioneer in the area of prepaid tuition – and that MET has helped thousands of families achieve their higher education goals over the years.
More information about MET is available at SETwithMET.com or 800-MET-4-KID.