Ten years ago I was flipping through a magazine at the doctor's office when I came across an article about the best ways to save for college.
It was a topic I'd been thinking about...a lot.
Even though my kids were young — my daughter, Jai, was 10, and my son, Matthew, was 7 — I'd been putting about $25 a month into a college savings account for each of them since they were born, as well as every dollar they'd ever been given as a gift. I'd also opened South Carolina state 529 accounts for each of them, where I was depositing about $125 a month. And I was contributing to a state tuition prepayment plan too.
I knew I was doing the right thing by saving so much, but I constantly wondered if it would be enough.
I was starting to hear about skyrocketing tuition prices from friends who were also worried about whether they were putting enough away for their kids' education. When I attended Spelman College in 1981, the tuition was just $3,000 a year. But when my daughter was in kindergarten 18 years later, that tuition had already shot up to nearly $12,000 a year — and I knew it was only going to increase.
So when the article mentioned the Private College 529 Plan, a savings plan that lets you prepay private college tuition and lock in today's rates, I was intrigued — especially since I was hoping my daughter would follow in my own footsteps at Spelman.
Why I started saving the day my kids were born
As a high school senior, I had my heart set on Spelman, the all-girls college in Atlanta. The only problem? My dad didn't want me to go because of that $3,000 price tag.
But I was determined to do whatever it took to attend. So I applied for — and won — a $1,000-a-year scholarship, and worked as a dorm desk aid, resident assistant, and biology tutor on campus to pay the rest.
After graduation I applied to medical school at Meharry Medical College in Nashville, but the awards package I received wasn't what I expected. I wrote a letter to the financial aid office, explaining that I couldn't afford the $12,000-a-year tuition and therefore wouldn't be attending.
To my surprise, they sent me a significantly larger scholarship package, allowing me to enroll. I ended up with just $26,000 in student debt after med school, and as an internist now making roughly $90,000 a year, paying off my loans wasn't too difficult.
But times have since changed. I knew there was no way my kids would ever receive a similar response if we wrote a letter pleading for financial aid. Even if they also worked their way through college, they simply wouldn't be able to cover their tuition costs as I had — which is exactly what inspired me to start saving for their education as soon as they were born.
An A+ plan for saving for college
Not only did I not want my kids to struggle to pay for college, I also didn't want them to feel shoehorned into attending a school with the cheapest tuition. A lot of family friends had no choice but to send their kids to state schools, but I wanted something different for my kids — for them to have options.
As the breadwinner in my household, I made sure we were always comfortable, but we never spent a lot on things we didn't need. My kids didn't have the video games and expensive cell phones their friends had, and I made sure to stash whatever extra money we had into their savings plans.
So by the time I read that magazine article in 2005, I was already in the right frame of mind and started doing some research on the private college plan. Basically, I learned that it allows you to prepay your kids' future college tuition at the price it is today. And considering the jump in costs each year, the sooner you pay up, the more you'll benefit later.
I also had to make sure that Spelman was a participating institution — meaning that they had agreed to accept the lower tuition payments once a student enrolled down the road — and I was thrilled to learn it was. Even though I couldn't be sure Jai would choose my alma mater, the thought of her enrolling at Spelman in 2012 — but only paying 2005 tuition fees — was too good to pass up.
I suppose the idea was a gamble, but the plan didn't feel risky to me. If Jai decided not to go to Spelman, the savings in my account could go toward tuition at any of the other participating schools, like Stanford and Duke. If she decided to go to a non-member private school or state school, I could transfer the funds to Matthew or even another family member. And if none of these options played out, the savings would be refunded to me, albeit at a low interest rate of about 2 percent.
In 2005 the tuition at Spelman was $16,000, so I decided my savings goal would be $32,000 — or two full years of expenses — before Jai started her freshman year. I figured if she established herself as a great student, she might be awarded a scholarship for her last two years. So with that goal in mind, I opened the account.
To get it started, I made my first deposit — about $22,000 — after cashing out a retirement account from a previous job. Although I was actively contributing to my new employer's retirement plan, looking back, I realize financial advisers wouldn't consider this the smartest move for my own financial health because, as they say, while you can borrow for education, you can't do the same for retirement.
Over the next year I contributed another $10,000 to Jai's plan, which brought me up to my goal. To make it official, I received a certificate for exactly 50 percent of Spelman's four-year tuition costs, so no matter how much it would have set us back the year Jai decided to attend, she'd be covered for two full years.
Decision day 2012
Fast-forward to Jai's senior year of high school. By this point, we'd been talking about Spelman for years, so she naturally applied there, plus a few other schools, including Pepperdine University in California.
Ultimately, Jai was accepted at Spelman and Pepperdine — her top two choices — and she received a half-tuition scholarship at Spelman, which meant that the two years of tuition I'd saved would cover the entire cost of her schooling. Even though Pepperdine didn't offer any financial aid or scholarships — and it wasn't part of the private college program — I told her I was willing to do whatever it took to pay for her education if she decided that was where she wanted to attend.
But when it came time for Jai to make her final decision, she was conflicted. She knew I'd had an amazing experience at Spelman, but I was going through a divorce at the time, and I think a West Coast school sounded like an alluring escape.
As the deadline for deposits approached, Jai still hadn't made a decision. So I took matters into my own hands — and secretly sent a deposit check to Spelman. I didn't want her to be shut out of college completely! Of course, she was surprised when she learned what I'd done, but I think she was also relieved and thankful for the closure.
In the end, my bold move sealed the deal and she chose Spelman. She's about to start her junior year — and couldn't be happier as a pre-med major who's planning to attend medical school, just like me.
As for how my ambitious savings plan planned out?
Because the 2012–2013 tuition at Spelman was just over $21,000, I'm paying about $10,000 less over two years than I would have had I not used the 529 plan at all — which frees up more cash to put toward Matthew's education. To date, I've saved a total of $70,000 for both of them through the various savings plans I put in place when they were babies.
And thanks to those diverse savings methods, I may even get some money back — from the South Carolina State Tuition Prepayment Plan, for instance — if Matthew gets a scholarship or otherwise doesn't need to use it all. I tell my kids that if they have good sense, I'll give them the money for more education.
But if they don't have good sense, I'm going to the beach.
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