By John Richardson, Staff Writer
Maine Telegram September 1, 1996
When Joseph Winschel and his son stopped at Maine Education Services' information van to talk about college, Winschel was curious about courses to boost his career.
But his first question was how best to invest the college money he and his wife are saving for Benjamin, his 6-year-old brother Thomas, and his 2-week-old sister Erin.
Saving for college was something Robert and Mary Bafley, like many other parents, never managed to do. Their solution to the daunting cost of college for their daughter Tara was to get a lot of aid or have her commute to a local college and borrow whatever was necessary to pay for it. Now, after hiring a professional consultant, Tara will attend a $25,000-a-year private college in California for less than the cost of a commuter school.
Never has college been considered so vital for children's futures. And never has it demanded so large a share of families' incomes and savings, with costs about twice what they were 10 years ago—and expected to double again in about 11 years.
College can be a family's largest investment and can strain household budgets from the days of diapers until retirement. In response, parents like the Winschels are saving more, and earlier, to reduce the amount they will have to borrow when freshman year arrives.
But most parents end up facing college with little savings after investing in homes, cars, and retirement accounts and raising their children. Facing the possibility of limited college choices and big debts, families like the Baileys are seeking out major discounts in the form of financial aid, then negotiating for the best deals.
Sticker shock is a great motivator. Annual college costs today range from about $12,000 at a state college to $30,000 at an elite private college.
College tuitions continue to grow faster than families' incomes and the general rate of inflation. Tuition increased about seven percent each year during the past decade; inflation was less than four percent, according to the Maine Education Service, a nonprofit agency that counsels students and offers discounted student loans.
While families are less able to pay for college, they are more determined to send their children. College is considered basic training for life in the modern economy.
The gap between what college-educated workers earn and what others earn has grown from 40 percent in 1979, to about 75 percent now, according to the Maine Education Service. And by 2000, an estimated 80 percent of Maine's workers will need postsecondary education.
In Maine, the average hourly wage for jobs that generally require a college degree is twice that for jobs that don't, about $18 an hour vs. $9 an hour, according to a computer analysis done by The Portland Newspapers earlier this year.
“You've got to think about it as if you're going to start a small business,” said William Stone, a director of Maine Education Services. Saving and paying for college is the equivalent of investing in the intellectual capital of your “business.” “Education,” said Stone, “is the one fluid asset that ensures your employability.”
Steady flow of questions
Stone answered a steady flow of questions about college financing recently from parents and adult students who stopped at the agency's mobile information center in Portland's Monument Square.
For Joseph Winschel and his wife Mary Beth, college is an obvious priority. “Our parents gave us the opportunity to go,” he said.
Joseph is an accountant, and Mary Beth is an X-ray technician. They live simply in a modest Cape Cod-style house in Portland, save for retirement, and put away about $50 a month for college. That's nowhere near the $300 to $400 a month that studies say should be saved to pay for a college education 12 years away. But it's something.
“Anything that you can put toward that is going to help,” Winschel said. “Once you start saving, you don't miss what you put aside.”
It's not painless, however. “You have to give up something,” he said. “We don't take vacations.”
Winschel said he has heard people say that saving for college is a mistake because colleges won't see a need for financial aid. He doesn't buy that and neither do the financial experts.
Financial planners and consultants universally praise the savers. While they don't suggest a lifetime of austerity and say college savings shouldn't replace retirement savings, experts say college funds will cushion the impact when the time comes and can open the door to a broader range of schools.
It's never too soon to start saving, the experts say, especially with the rewards of compound interest.
“If someone gets married and plans to have kids, get a piggy bank,” Stone said.
Financial planners recommend a variety of ways to save for college. A general recommendation is to invest for growth when the kids are young and move to less risky investments, bank accounts, or bonds when they get into high school.
Borrowing from the equity in a home or a retirement account can help when the time comes, but advisers say that using those accounts is generally not the best way to save for college. Private colleges with money to give will consider home equity as an asset available to cover tuition.
Save in parents' names
Another general recommendation is to save money in the parents' names, not the child's. Even though investing in the child's name saves taxes, it will have a significant impact on the amount available in aid. Colleges consider 5 percent of a parent's savings to be available for college but consider 35 percent of a student's savings to be available.
“People generally need to save more, and if it's positioned properly, it won't hurt you,” said Cliff Ryan, a financial planner.
The notion that saving for college is a bad idea is especially misguided today, said Stone. “The way things are going, there just isn't going to be that much free money out there to make a difference,” he said.
Federal grant funds are drying up, so more families are taking on more loans to pay for college. University of Maine students graduated this summer with an average debt of $11,000, up almost 60 percent since 1990.
Twenty years ago, grants represented nearly 80 percent of the aid for students. Today, grants represent just 43 percent, and the majority of aid is in federally guaranteed loans.
“My personal advice is to save right away,” said Paul Martel, a financial adviser at Legg Mason in Portland. “There are a lot of people who claim there's this large pool of untapped (aid). But the reality is when you go to find it, it's sometimes not there. I'd rather have the sure bet of the money in the bank.”
That's not to say that once a child is preparing to go to college, it's not worth hunting for the money.
Jeff Morrison at College Solutions in Portland is a kind of treasure hunter for families facing the prospect of huge tuition bills and lots of debt. Morrison also thinks families should save, but he regularly proves that even those who don't save a lot may be able to avoid going deep into debt. And his services appear much in demand.
For a flat fee College Solutions helps students and families select colleges to apply to, based in part on his knowledge of where the aid is. Then he goes after the aid packages, a combination of grants and scholarships, loans, and work-study.
Best deals at top schools
Morrison said he got an average of $18,000 in awards for his clients this year, more than 80 percent of it in money that won't have to be repaid. He finds the best deals at some of the most expensive and most reputable schools, as opposed to state universities that have no money to give away.
“It often costs less at a private school that costs $28,000 than a state school that costs $18,000,” Morrison told a group of about 120 parents dining one of his free college financing seminars. “It doesn't matter what the school costs; it matters what the school costs you.”
Not all of the scholarships go to star students, and Maine students generally get more aid at schools outside New England.
Morrison employs a host of techniques. He has students apply to enough schools to effectively pit schools against each other, for example, and says students who apply early, visit often, and appear overeager are less likely to get the big awards.
Tara Bailey and her parents are believers. Their experience offers encouragement to families who could never save enough.
“We were never in a position where we could put a lot of money away,” said Robert Bailey, whose family owns a small bookstore in Portland. “It’s mind-boggling when you look at the cost of going to college. We were very interested in what (debt) Tara would be saddled with when she got out of school.”
They hired Morrison, and the results exceeded their hopes. Tara, who was in the top third of her class at Deering High School, left last week for Pitzer College in California, a private liberal arts college whose tuition is more than $25,000 a year. The bulk of it will be paid for with scholarships that don't have to be repaid.
“It's actually cheaper for me to go out there than to go to the University of Southern Maine,” said Tara. “I never thought that would happen.”