Alright. You caught me. In fact, most of the time not saving for college is a bad idea. Every once in a while I run into a parent who tells me that he is not saving for college in order to increase his child’s chances of getting financial aid. The idea is that having money makes college and the government thinks you can afford college and therefore no help is needed. This, to some extent, is true. If you have millions in the bank, I’d rather you not take my tax dollars and use it to pay for your kids’ college so they can spend the money on first class tickets to Vail.
However, assuming that saving for college will ruin financial aid is short-sighted and involves a lot of assumptions. The first is that financial aid will be available for your child. We don’t know what the government will have in the form of aid in 5, 10 or 15 years. You should also realize that most financial “help” comes in the form of loans. You may very well be creating a situation that burdens your children with onerous loans that they will have a hard time repaying in exchange for a slightly better lifestyle now. I wouldn’t call that good financial planning.
Another reason saving won’t do much harm when it comes to aid is that the government knows you have more to save than just for college. If you save on your behalf instead of your child’s (including 529 College Savings Plans and Coverdell ESAs), less than 6% of the savings in those types of accounts will count toward financial aid. Yes, it counts a little against you, but not as much as assets held in the child’s name at 20%.
There’s a good reason not to save for college: You have bigger needs for that money. Note that I don’t say “if you can’t afford it”. That’s because determining affordability is often made simple to see if you have money left over at the end of the month. Most of us find ways to spend the money that is available. What we spend it on can be a true vital need, but it can also be a doubtful desire.
So what can take precedence over college savings? Being a retirement planner, I like to see money saved for the time when I can no longer work. Of course, food, clothing, and shelter also seem like necessities. But let’s be clear: You can spend $20, $40, or more than $100 on blue jeans. I’m thinking the $100 pair doesn’t count as a necessity.
In the end, though, some people simply won’t be able to afford to save for college without falling short in other vital areas. That’s not selfish, it just is. But for the rest of us, it’s an area that deserves our attention.