When not saving for college is a good idea

By Gary Silverman, CFP®

I don’t know what title this story has (it’s set by the folks at the newspaper) but I proposed a provocative title: When not saving for college is a good idea. You might think that the answer is “never” but veteran column readers know a better choice is “it depends.” And it does.

Indeed most of the time not saving for college is a bad idea. Now and then I’ll run into a parent who tells me they are not saving for college in order to increase the chances their child will get financial aid. The thought is that having money makes colleges and the government figure you can afford to pay for college and therefore no aid is needed. This, to a limited extent, is true. If you have millions in the bank I’d rather not have my tax dollars taken and used to pay for your kid’s college so that you can spend the money on first class tickets to Vail.

However, assuming that saving for college will mess up financial aid is short-sighted and makes many assumptions. The first one being that there will be financial aid available for your child. We don’t know what the government will have in the way of aid in 5, 10, or 15 years. You should also realize that the majority of financial “aid” is in the form of loans. You very well could be creating a situation that burdens your kids with onerous loans they will have difficulty paying back in exchange for a little better lifestyle now. I wouldn’t call that sound financial planning.

Another reason that saving won’t hurt much when it comes to aid is that the government knows that you have more to save for than just college. If you save in your name rather than your child’s (including the 529 College Savings Plans and Coverdell ESAs) less than 6% of the savings in those account types will be counted against financial aid. Yes it does count against you a bit, but not much as assets held in the child’s name at 20%.

There is a good reason for not saving for college: You have more important needs for that money. Note I don’t say “if you can’t afford it.” That’s because determining affordability is often simplified to seeing if there’s money left at the end of the month. Most of us find ways to spend any money that is available. What we spend it on might be a true life-giving need, but it also might be a dubious want.

So what may take priority over college savings? Being a retirement planner, I like to see money put away for the time when you can no longer work. Of course, food, clothing, and shelter also seem like needs. But let’s be clear: you can spend $20, $40, or well over $100 on blue jeans. I’m thinking the $100 pair doesn’t count as a need.

In the end though, some folks just won’t be able to afford to save for college without leaving themselves short in other vital areas. That’s not selfish, that just is. But for the rest of us, it’s an area that deserves our attention.

This article was printed in the Wichita Falls Times Record News on January 10, 2016.