Getting smart about college, Part 2

Steve Merrell |

Last week I wrote about the need to be smart when it comes to your college education. We looked at how expensive college has become and how your course of study can affect your future income. I also highlighted the financial perils of student loans. While borrowing for college may feel easier now, those student loans can saddle you and your parents with a heavy burden for years to come. With those thoughts in mind, here are a few tried and true ideas that will help you get through college with the least amount of debt necessary.

1.  Start with community college. One of the easiest ways to reduce the overall cost of college is to spend your first two years at a community college. When I mention this, some people turn up their nose at the idea, but it deserves a careful look.

I am a big believer in the benefit of community college. Three of my five children started their college careers at community college, including my son who is currently earning his Ph.D. in computer science at the University of Wisconsin. For the most part, the quality of the faculty is every bit as good (and often better) than you will generally find teaching comparable courses at a four-year university. And the cost of community college is a fraction of the cost of a four-year school.

You can save even more money if you live at home while attending community college. I know that idea is not going to appeal to many college-bound folk anxious for independence. But would you rather live at home as an 18-year-old MPC student or as a 25-year-old college graduate trying to keep up with student loans? To me, the choice is pretty clear.

2. Work part-time while you go to college. Realistically, a part-time job at school is not going to earn enough to make a serious dent in your tuition, but it can help cover your living costs, especially when augmented by summer earnings.

My wife and I had a deal with our kids. If they maintained a minimum GPA, we would pay for their tuition, books and fees. They were responsible for their living costs. If they covered their tuition with scholarships, we would contribute that much to their living expenses. Whether they worked during school or lived on what they earned during the summer break was completely up to them. This arrangement helped them develop independence while keeping them responsible for their academic performance.

3. Start early and save for college. One of the best ways to deal with the cost of higher education is to save for it. 529 plans are a great for this, but they work best if you are strategic in how you use them.

For example, balances in a 529-plan account owned by the student or a custodial parent are reported as assets on the student’s FAFSA statement and may reduce her eligibility for financial aid. However, assets held in the 529 plan account of a grandparent or some other non-custodial relative will not appear on the student’s FAFSA. The 529 owner could roll a year’s worth of college expenses into the student’s 529 plan after the FAFSA update for the year is filed but before the college expenses are paid. As long as distributions from the 529 plan are used for bona fide higher education expenses, they will not be reported on the student’s tax return and will not show up on the FAFSA. These transfers have to be done in a timely way, so you probably want to work with an advisor who has experience in this area.

The decisions you make about higher education will have a long-lasting influence on your financial wellbeing. On the one hand, a college education can significantly increase your lifetime income; on the other hand, unless you are careful, it can saddle you with a significant debt burden.



Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to