How to save for college during a recession

Families shouldn't compromise emergency and retirement options

5 tips on saving for education
1. Prioritize your savings. Put away enough for retirement.
2. Cut spending, particularly as college years approach.
3. Maintain flexibility with your savings.
4. Seek financial aid and apply quickly.
5. Explore low-cost loans and campus jobs as needed.

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 planning 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 10 to 30 years after completing their education. But parents cannot borrow money for food, medicine and a roof over their head 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.

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