College may not be for every parent

Value Judgments

Your Money

April 11, 2004|By JANET KIDD STEWART

IT'S THAT time of year when high school seniors decide where they will attend college and when parents inch closer to those stunning tuition bills.

Even for parents of younger children, the clock is ticking. And some people aren't waiting to become parents: In a posting on the www.savingforcollege. com Web site, a guy recently asked for advice on setting up a college savings program for his unborn children.

All told, families now have more than $62 billion stashed away in designated college savings programs, according to estimates by Cerulli Associates of Boston.

Sending kids to college is the Holy Grail of parents. But should it be?

Stretched too far

The founder of a college financing advisory service told me he routinely sees parents stretching too much to send kids to expensive schools, and their retirement accounts pay the price.

"Every kid in America can borrow at low rates for an education, but you can't borrow for retirement," said Rick Darvis, an accountant who started College Funding Inc. to help parents and financial planners prepare for higher education.

Well, maybe, but college costs continue to outpace inflation, said Joseph Hurley, founder of "It really is more of a pinch today," he said.

Another reason parents are putting more money away for college is an increasingly popular tax-advantaged savings account known as the 529 plan.

The state-run plans allow tax deductions for contributions and the investments grow tax-free. States allow as much as $305,000 to accumulate per child. Even more could start flowing if proposed federal lifetime savings accounts are added to the mix.

But you won't find Darvis loading up 529 plans for his own five children.

To the contrary, he said many parents put themselves in jeopardy of running out of money in their later years by over-financing college accounts.

"I'll be 73 when the last kid gets out of college," said Darvis, whose children range from a high school senior to a 3-year-old.

"I'm telling them my own retirement is lacking, so they'll have to borrow. I'm saying, `You're totally on your own.' "

Well, not completely. Darvis said he will help where he can, with a little spending money and with lots of advice on loans and financial aid strategies. But the bulk of the responsibility will fall to the children.

That's the way it worked for Greg Lynch. The Madison, Wis., corporate lawyer worked odd jobs part time and took out loans to get through college and law school, an experience he credits with giving him a strong work ethic and people skills.

He also said he feels more secure knowing his parents' retirement is in better shape.

Now that he is a father of a newborn himself, Lynch will likely be able to afford to pay for college without saddling the kids with debt. But he says he won't be writing blank checks and will fully finance his retirement plans first.

Some tough love

"We're going to tell them early on there will be a finite pool of resources" that they will be responsible for spending wisely, Lynch said. They can decide to scrimp and go to a less expensive school, banking the rest to start a nest egg. They can start a business or blow the entire amount on a pricey school, he said.

"This is going to be hard because it will be a little bit of tough love," he said. "If they make poor choices, they'll have to live with them."

There is also value in not getting carried away with worry over college costs.

"For the most part we just held our noses and jumped in," said a friend of mine with two kids now at a costly East Coast university.

"Although they had some guidance from us, they pretty much chose the schools they wanted to attend and, hopefully, will keep in mind that we expect them to spend our dollars wisely."

E-mail Janet Kidd Stewart at

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