Got money? Save some of it for college

“If you can save for college, you probably should.”

That’s the mantra I’ve chanted in columns, speeches and interviews over the years. An article in today’s Wall Street Journal shows a lot of upper middle income parents aren’t listening, gauging by the amount of student loan debt they’re taking on. What the Journal found:

  • Among households with annual incomes of $94,535 to $205,335 (80th to 95th percentile of all households), 25.6% had student-loan debt in 2010, compared to  19.5% in 2007. Among all households, 19.1% had education debt in 2010 compared to 15.2% three years earlier.
  • The amount borrowed by upper middle income households rose to $32,869 from $26,639, after adjusting for inflation.
  • Fat student loan bills are no longer an anomaly. More than three million households have a student loan balance of $50,000 or more. That compares to about 794,000 in 2001 and less than than 300,000 in 1989, after adjusting for inflation.

The Journal threw in another statistic: More than one in three households with incomes of $95,000 to $125,000 who had a child entering college in 2011 didn’t save or invest for that child’s education, according to a survey by Human Capital Research.

Here’s the deal: A child’s financial aid package will be based in large part on what the parents earn. If they have a six-figure income, or close to it, the kid won’t get much help. Colleges expect that if you have that much income, you should have been saving some of it for education–whether or not you actually did.

Even families with lesser means could find they’re getting a lot less help than they expected, with much of it coming in the form of loans rather than grants.

Either way, that means the parents, the kid or both could be taking on a lot of debt.

The Journal suggested that this burgeoning debt may lead more families to more carefully consider cost and value when considering colleges, something that “could make it difficult for all but the most selective schools to keep pushing through large tuition increases.”

We’ll see about that. In the meantime, if you’re lucky enough to have a decent income, consider putting at least some of it aside for your kids’ educations. Do it even if you won’t be able to pay for everything, or you want your kid to be mostly responsible for the cost. Every dollar you save is a dollar your child–or you–won’t have to borrow later.



  1. Most households don’t save enough for retirement, either. At least there’s an option to borrow for college.

  2. Thank you for saying this, Liz. It seems like far too many personal finance writers go through far too many mental contortions to argue that stiffing your kids’ college funds is the “responsible” thing to do. Not so.

  3. Currently I’m not funding my husband and I’s Roth IRA to the full 10k due to also contributing to 401k’s at work; is it better to take the 2k we have set aside for my 3yr-old’s college education and put it in a 529 or our Roth? From my understanding I can use money from the Roth to pay for school tax free…is this correct? If that’s the case wouldn’t it be smarter to put it in the Roth so I don’t face any penalties for using any leftover money in the 529 plan for my retirement (a person can dream that this is the case)

    • There are a few problems with saving for college using a Roth. A big one is that only your contributions will be tax free when withdrawn; any earnings you make over the next 15 years or so will be taxable. (You avoid the 10% federal early withdrawal penalty when the money is used for college, but you don’t avoid income taxes.) In a 529, all withdrawals used for qualified college expenses are tax-free. Also, the Roth has a lot of advantages in retirement; if you deplete it before you get there, you’ll be missing out on a lot of flexibility in managing your tax bill in retirement.

  4. Thanks for the answer. I’ll be picking out my 529 this week 🙂