| Sargent & Lundy Savings Investment Plan |
| TOMORROW'S COLLEGE COSTS |
| The following excerpts are from an article in the June
1995 issue of "Money" magazine. The opinions of the authors,
Ken and Daria Dolan, may or may not reflect those of the SIP Committee.
June - high school graduation month - is as good a time as any to start planning for one of the biggest bills you'll ever face - your children's college tuition. Four years at a public university costs $26,000 today on average; at a private school the average tab runs $66,750. And don't expect those numbers to get any more manageable as time goes on. If you start early and invest with discipline, you could be in position to afford any college. Compound growth, after all, can be a powerful ally. Develop a plan, stick with it and keep the following tips in mind: Stay away from gimmicks. Many investments marketed especially for college savings fall into this category. The CollegeSure CD, for example, raises its interest rate annually in line with college tuition costs. Sounds good - until you realize that the yield on the five-year CollegeSure CD works out to just 4.45%, compared with more than 7% on a five-year Treasury. Some states, including Florida and Pennsylvania, offer tuition lock-in plans, in which you pay tuition at today's rates to lock in an education for your teenager in the future. However, your choice of college may be limited, and you cannot use the money for any purpose other than college. One more issue: You will owe federal taxes on the difference between what you paid today and the cost of tuition when your child attends college. Keep the savings in your name, not your child's name. When a college financial aid office reviews your finances, it uses a government formula to calculate your family need. Among other things, the formula figures that you will contribute a mere 5.6% of your own assets, not counting home equity and retirement savings: it assumes your child will put up 35% of his or her stash. Thus the more money your keep in your child's name, the less aid the college will figure you need. Aim for long-term gains with stocks. Over the long term, stocks have provided the highest return available to small investors. But remember; while stocks have been steady performers in the long run, they could take a dive just before your tuition is due. As college savings, they make sense only if your first tuition bill is at least five years away. As tuition bills draw near, move into zero-coupon Treasuries. Zeros are government- guaranteed bonds that pay no current interest; instead you buy them at a discount to their ultimate value at maturity. A zero with a three-year maturity would cost you about $810 right now (check at least three brokers for the best price) and pay you back $1,000 in 1998. That's an effective annual interest rate of 6.6%. If you buy four separate zeros maturing in each of the years that your child will be in college, you'll get your money just in time to pay tuition bills.. |
This page updated on 7/28/97