Saving for educational expenses in an economic downturn is a daunting task. It's scary enough to face a price tag of $80,000 to $200,000 for four years of college under any circumstances, but with the economy growing weaker and people losing jobs, it's terrifying for many families.
But there are strategies, experts said, that can help parents sock away money for education and obtain aid to help defray the costs.
For families still a few years away from the college years, for example, Somnath Basu, a financial planner and finance professor at California Lutheran University, encourages families to plan ahead in case they suffer a financial setback as college looms.
All families thinking about college should be saving more and spending less, Basu said. He suggests that parents tell high school students that education is a priority, and spending cuts must be made immediately to ensure that college is possible.
"This is not a time to run up clothing and cell phone bills," he said. "Families can eat meals together at home. College students can be told to eat the meals at the college cafeteria. There is no need for limos at the high school prom."
Whether for college or private elementary or high schools, experts recommend automatically putting aside a designated amount from each paycheck into savings, if possible.
But some families cannot afford to build up emergency savings and adequate retirement savings, plus stash money for education. So if there are compromises to be made in saving, they should focus on less college saving rather than less emergency or retirement savings.
Young families often set their priorities backward, wanting to make sure they do as much as possible to help children through college. But financial planner Sheryl Garrett of the Garrett Planning Network said that too many families crimp their retirement needs by overspending on college.
Parents should realize that college students can borrow money at low interest rates for college and pay it back during the 10 to 30 years after they complete their education. But parents cannot borrow money for food, medicine and a roof over their heads if they are 75 and without adequate retirement savings.
Given the uncertainties in the current economic climate, Garrett advocates that even college saving be done in a way that won't interfere with a family's options.
She suggests that parents save as much as $5,000 a year each in a Roth individual retirement account. With that type of IRA, parents could tap their original contributions in an emergency without penalty, or use it for college or retirement if no financial problems arise.
Putting money into a 529 college saving plan or Coverdell education account locks the family into spending the money only for education. If they withdraw the money for other purposes, they will be taxed.
Families already saving for college with 529 plans or other college savings do not have to close the accounts. They can route new savings into a Roth IRA, provided their income levels allow them to do so. Meanwhile, they should be reviewing any college investments now to make sure they are not invested too aggressively in stocks at a time when the market is shaky.
A rule of thumb is to invest no money in the stock market that will be needed within five years. So by time the student turns 17, it's considered risky to subject college money to the stock market.
A person wanting to make sure college money would be completely safe could open a Roth IRA at a bank and invest it all in certificates of deposit.
Many parents look at meager savings and worry how they will pay for school. But some middle- and low-income families should be less concerned than they are: Many will be eligible for financial aid.
Aid could include low-interest loans, campus jobs and scholarships that come in many shapes and sizes. Also available are grants-free money that does not have to be repaid. Qualifying is not contingent on grades or SAT or ACT scores. The grants are given to families by colleges based on the parents' and students' income, savings and other assets. At an Ivy League school, a family with an income of $180,000 might qualify, while at a public university incomes over $70,000 might not.
Many private high school or elementary schools also will grant scholarships to families in need or will allow people to defer payments.
Still, at both the college and private-school level, the economic downturn is eroding some opportunities for aid.
The plunging stock market has hurt college endowments and donations, making it more difficult for schools to deliver the aid they would have during better times. Consequently, families with students headed to college this fall need to apply quickly for aid so they are in front of the line.
"There is aid available, and people should go after it," said Kalman Chany, a New York financial aid consultant and author of "Paying for College Without Going Broke."
To apply for aid, families must complete a form known as the FAFSA and submit it to colleges along with their tax return. Private colleges might want another form, the Profile. College financial aid offices will tell you what they require.
Even people who qualify for grants usually must come up with additional money of their own for college. But combined with college savings, low-interest federal and state student loans, as well as work-study jobs on campus, frugal families can often make the situation work.