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It’s Never Too Early -- or Too Late -- to Save for College

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Every parent wants to give their children the best in life; for many parents, part of this equation is planning for their children’s college education. “It is never too early to start planning how you’ll help your child pay for college,” says Jane Ann Schiltz, vice president of marketing for Northwestern Mutual. One look at the cost of a college education and you know that the sooner you start saving money, the better.

According to The College Board, the average price of a four-year education at a private university in 2002 was $110,708. Based on average historical rates of inflation for college costs over the past 10 years, the price tag for that same education in the year 2020 would be $216,636.

Costs at public universities, besieged by budget cuts, have also risen sharply. Add to the mix an increased demand for financial aid, at a time when those funds are dwindling at colleges and universities, and it is clear that students and their families will be facing large tuition bills. However, despite good intentions, almost half (44 percent) of parents are not putting money aside to fund their children’s college education, according to a recent survey conducted by Harris Interactive for Northwestern Mutual.

If you are part of that 44 percent, and haven’t started saving yet, don’t panic. It’s never too late to start. Planning is the key to reaching your financial goals. If you are overwhelmed by the thought of mapping out a plan, consult a financial representative who can help you put together a college funding strategy that will meet your goals. There are a variety of ways to fund your child’s college education; you need to find the combination of options that is right for you and your family. Schiltz offers some key points to bear in mind when laying out your plan:

• Set your goal. The first step is to determine how much money you will need for your children’s college expenses. Once you have a number in mind, you can create a plan to help you get there.

• Get your finances in order. Saving for college should be part of your total financial plan, not a stand-alone goal. You need to make sure your finances as a whole are in order -- including your will, life insurance, retirement plan and other investments in order to see how college saving fits into the mix.

• Know your options. There are many ways to fund your children’s education, including Coverdell Education Savings Accounts (formerly Education IRAs), Custodial Accounts, Section 529 Plans and other investment options such as mutual funds, CDs, savings accounts, stocks and bonds. Each of these options has advantages and disadvantages. A financial professional can help you sort through the choices and advise which ones best meet your needs.

• Don’t forget life insurance. This may not be the first thing that comes to mind when thinking about paying for college, but it is an important part of your mix. Permanent life insurance can play a part in college funding in a number of ways. Most obviously, in the event of your death, your child can use the death benefit to pursue their dream of a college degree. In addition, depending on the type of policy and how it’s structured, you can draw on the cash value in your policy to bridge the gap between financial aid and tuition. Check with a financial professional on the advantages and potential consequences of borrowing from your policy.

• Consider tax and financial aid implications. Some of the college savings vehicles are taxable while others are not. Likewise, some of these accounts will impact future financial aid eligibility, while others won’t. Once again, a professional can help you navigate these choices.

• Get the whole family involved. Grandparents and other family members can contribute to the cause by using many of the options listed above, such as Coverdell accounts and custodial accounts. By exploring all your options, you’ll gain a big picture approach to education planning and have a better understanding of what works best for your family.

For more information on college funding options, visit the Northwestern Mutual Web site at northwesternmutual.com. The college funding calculator can help you estimate your funding needs. If you would like a copy of the company’s education funding brochure, you can locate a Northwestern Mutual Financial Network representative in your area.

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