A Lot of College

Dear Dave,

We have five kids under the age of five. We'd like for all of them to be able to go to college, but we're not sure how much it will cost. Our household income in about $90,000 a year, and we have no debt except for our home. What's the best route to go with our college savings plan?

Laura

Dear Laura,

Whew! Boy, you guys have got a house full and your hands full! You've also got a nice income, and that's going to help a lot. Right now, the most you can put into an Educational Savings Account (ESA) is $2,000 per year. If you did this annually for each kid, you have a little over $100,000 per child when it comes time to send them off to college. Pretty sweet, isn't it? That will buy a good education at just about any state school.

For the first $2,000, an ESA has more flexibility than a 529 plan. They're very similar in how they act, but with an ESA you're in total control of the investment. You can move it around, and put it into almost any mutual fund. If you use the ESA or a 529 for anything other than college you'll get hit with a 15 percent penalty, plus the tax rate, so start brainwashing the kids now; it's for college only!

- Dave

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Individual Savings Not a good idea?

Kimberley in Portland, OR.

I just went to a presentation from an "Admissions Coach" and she said that when you have separate savings, 529's, whatever for each child, when you go to fill out the FAFSA for your first child, they use ALL OF THOSE FUNDS towards what they think your Family Contribution will have to be. Not sure if you need to find another way to have this money saved for your children to where it won't affect your first child's EFC. Any advise?

College Savings affecting F AFSA/EFC

Dawn in Gainesville

As a former Financial Aid coordinator, I am well-versed in the field of EFCs (Effective Family Contribution). It doesn't matter what kind of savings you have, it still has to be reported and it will always affect your EFC. You either have money to contribute or you don't. But, think positively, would you rather know that you have money and a higher EFC or have a low EFC and be broke? Which is better? Having been a person with an EFC of 0, I can safely say that it is much better to be in the former category. I hope that helps you!