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College Choice


From Sippy Cups to Student Loans: The Urgency of Saving Now



February 01, 2009
Tuition and fees. Textbooks. Room and board. Campus activity fees. These words may not be part of your vocabulary today, but they will be soon. Today your shopping cart holds sippy cups and baby blankets, but before you know it, the check-out will include much larger items.

I often have the opportunity to speak to crowded rooms of young parents to urge them to begin saving. When I speak of the expected cost of a college education for the high school class of 2020, fear and disbelief appear in the eyes looking back at me.

CollegeBoard, a group that studies trends in collegiate pricing, reports that last year's college costs increased 6.4 percent and estimates the cost of a four-year public institution for today's newborns will be $170,000. A private school or college will be double that figure. To provide a current perspective, the 2008 graduating college class walked off campus carrying two things: a new diploma and, on average, $22,700 in debt.

The need to save has never been greater. Market conditions during the last several months have scared many away from investing. But investing is never a short-term mission; it should always be viewed for the long term.

Let's look at that debt that this year's graduates are bearing. If their parents had opened a 529 plan account 18 years ago and had started saving just $44 per month, with a 7% return (the historical average during that period), they would have accumulated $22,700. Now, according to The College Board, the average student graduates college with $22,700 in student loans, so the student could have used the 529 funds and graduated with zero debt. On the other hand, for those graduates who now have to pay off the $22,700, if they acquire the funds with a 7% loan, it will cost them $236 a month and will take nearly twenty years before they're debt free. Said differently, you can invest, and thus "pay" yourself $44 dollars a month for eighteen years, or pay back someone else at $236 a month for twenty years. Clearly, it costs less to save than to borrow.

Indiana's CollegeChoice 529 plan was recently re-launched with UPromise Investments, Inc. as plan administrator. UPromise provides a direct plan for those who wish to invest on their own (please see www.CollegeChoicePlan.com) or an advisor plan for those who already use the services of a financial professional.

Either plan offers great opportunities to invest and both offer the UPromise Rewards program, which allows you to receive cash back for routine credit card purchases, and UGift, which allows savers to invite family and friends to help save for a child's education.

These programs make the point in these difficult times that saving should be a daily event and offer up to a 20 percent tax credit against Indiana income taxes.

Soon, instead of fitting car seats and strollers into a shopping cart, you'll be writing checks for the one item that will never be outgrown, worn out or be unused: a college education. The future is coming fast, so start investing today.

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Richard Mourdock is the Indiana State Treasurer.

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