saving for college

Hi Terry,

My daughter is approaching her first birthday and have begun saving for her future college tuition. What would you suggest as a plan to set enough money aside until then? I stay at home, but plan to work again in a year or two. My partner currently earns about $3,000 a month, after taxes.

Thank you for your time and advice!

Kelli

Terry Says:  This is a tough question because I suspect you don’t have a lot of money to save if you are not currently working.  And if you have credit card debt, I would really suggest you apply any extra cash to that — because you are probably paying nearly 20% interest or more, and you can’t earn that amount anywhere on college savings!

OK,  that said, the best thing to do is open a 529 college savings account at Fidelity.com or Vanguard.com.  (You can use the money for any college in any state.)  It’s easy to do online, and they will set up a monthly automatic withdrawal from your checking account. Be sure to inform the grandparents and anyone else that you have set up this plan, and would love for them to contribute!  The website of the plan will explain how to add additional sums on a regular or just one-time basis.

You have one more choice. Depending on your state of residence, your state may offer a pre-paid tuition plan, which lets you buy future semesters of college (should be used for an in-state school to get the real benefit) at a discounted price now.  But I don’t recommend that for all states, because many are in huge financial trouble (for example, Illinois) and I don’t know how the state will make good on its promise in the future (or what the education will look like in18 years in a state that cannot well-fund its educational institutions).