Guest post: College students, could your parents save on taxes?

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The best method for me was to work full time while going to school. It helps you avoid procrastination, helps pay for school, and keeps you out of trouble.

Todd, Great post which I can hope would encourage folks to take action now. I am 37 with 3 kids (8, 6 and 4). Fortunately, we pretty much have college covered for the kids because we took advice like this and started early. The time to save for your kids college is now.

I think its great when parents can help with college expenses but don't do it the first year! I'm amazed at the number of Freshman who blow through their money and their parent's money partying the first year. They get put on academic probation and get kicked out or start their college career with a horrible GPA.

I recommend parents let their kids use their savings / PT work for the first year so they "buy into" their education. It is harder to constantly skip class when you know you are paying for it. Parents can do things like pay for insurance, be available for the occasional car payment that is going to get missed, and to give some extra spending cash around the holidays and vacations.

Then after the student has been forced to mature and take school somewhat seriously, the parents can start covering more of the cost. It helps establish good fiscal habits living on a shoestring budget.

I'm 22, am in a relationship but not married, and I have no kids. In reading this site and others, I wish I had started saving before I was born!

I mean, there is so much to save for! Emergency funds, college for me, general savings, college for my kids (who aren't even born), my wedding, vacations, retirement...the list gets bigger every year it seems! These days I look at every extra bit of income as a potential savings opportunity. I'm finding that I have to remind myself to have some fun with my money, too.

Todd- great post, much better than yesterday's, I think. This is much more like the quality I'm used to reading on this site. I'm going to forward this to some new parents I know that are interested in saving for college. Well done!

Ramit, I think Todd's articles are great. I am looking forward to tomorrow's post.

Actually I have a response to Seth. Yes, I feel the same way.. There is so much to save for. I'd like to share advice I got from a friend, that I have found very helpful - Put some money away in a CD for 4 months. Although the interest rate isn't great, it allows you to put money away, and forget about it. My problem in the past has been withdrawing money from the savings account for silly expenses, just because it is available. When the CD comes to renew, I add another few $$'s and roll it for another 4 months. It's a good way to set aside a month's rent or mortgage payment in a monthly CD, and keep it 'just in case'.

I hope this helps. I just wanted to share this advice, as I found it very helpful. Ramit, thanks for your great posts. Keep it up :)

@Puneet-

I like your tip about the short term CD savings ideas. One thing I learned along the way and love is the idea of starting a CD ladder, i.e. - setting up a series of CDs that ultimately continue to mature on a regular basis. About a year ago, I started buying 6-month CDs every month for 5 months, setting interest to reinvest in the CD automatically. By the sixth month, the first CD was ready to be reset. Now, every month I have a CD that resets automatically and I don't have to contribute any additional funds on my own. And the great thing is that if I do need to dip into savings, I can just let a CD expire any given month... so it's fairly liquid savings at a decent short-term savings rate.

I wouldn't recommend this strategy for long-term investing, but it's great when I'm planning to save for something significant within the next 2-3 years.

Thanks, Mike. I especially like your idea of a CD ladder. I think I will try to implement that myself. Yes, CDs are a nice way to build savings in the short-run. Thank you for sharing, Mike.

A quick question for those students eligible for student aid (subsidized loans and grants): How does this increase income/increase savings affect your eligibility for financial aid. I mean, if the government is going to give you the money to go to school anyways, shouldn't you be spending that time doing worthwhile things instead of scraping together every cent you can?

The reason I ask this is that when I went to school, I got slammed because I saved most of the money from my high school job. I walked out of school with the same amount of debt *and* with nothing to show for my savings.

Good ideas. I enjoyed this post. And even though I don't have kids yet, I've thought about setting up a college fund and slowly funding it for when I do have someone to send off to college. Even if I don't end up with any kids, the money could still be used for myself or anyone else I know, which is a huge plus.

On another note, to discuss further what Dan mentioned, I don't have any kids yet, but the discussion of paying for college comes up with the people I work with and my friends that have kids.

I think I'm going to let my kids assume they will be paying for school (I would save for it in secret), so they are more likely to look for scholarships, grants, etc. They can also take out loans if necessary. After they have finished, then I'll offer to pay off their loans. While they're in school I would help them with books and some other expenses, but tuition would be their burden. I agree with Dan that this gives them a sort of buy in and since they're paying for it they would be more likely to try to get something out of it. In fact, maybe doing this for the first couple years would be more appropriate, so their final two or three years they don't feel like they're being crushed by debt.

I've also kicked around the idea of a reimbursement system similar to a company that pays for school. 100% for an A, 80% for a B, 50% for a C, and nothing for a grade below a C. If they had to pay up front and knew they could be reimbursed, maybe they would try harder?

As a recently engaged person I found this article full of great advice. Thanks for the post.

[...] has guest writer this week on taxes. The advice is for college students, twenty year olds, and newly married [...]

I agree with everything here...But have also have a suggestion: if the family is really in a tough spot, have a family member get a second (or first) job at the college of choice and save up to 75% on tuition. THATS HUGE. Go at it as a family team matter and save everybody money.

Just a tip,

Amr T

This is a great article, I like Mike's idea of a CD ladder and hope to implement that. My brother and I are both dependents receiving financial aid and I am curious to how a CD ladder would affect our finaid eligibility since I had to quit my part-time job because my mom got the idea from a radio talk show that my income (around 2k) would lower our financial aid. I currently have a savings account with INGdirect with $200 and after reading many articles about saving, wanted to open a Roth IRA, but with no job, I was told it would be impossible. Would the CD ladder work for me?

@ L.T.-

I honestly can't speak for how personal savings in a CD ladder affects college financial aid eligibility. I wasn't in a position to do any serious savings until after college. Is there a financial aid office/dept at your school that could field the question?

If you want to keep your money in something liquid, then the ING route is a great way to do it. If you have long-term savings plans, I'd consider getting connected with an index fund that tracks the S&P 500... I've had one with Vanguard for about a decade now and it's been treating me kindly for the duration; low fees, no loads, yada, yada, yada.

Kudos to you for considering savings options early on. I wish I had that kind of tenacity when I was in school. Best of luck!

Thank you for getting back to me Mike. We do have a financial aid office, but the worker there hates answering my questions so I quit bothering them, but since I am transferring, I am likely to be able to contact the financial aid department there. Vanguard is a little out of my league at the moment, but I will keep in mind to get an index fund that tracks the S&P 500 when I can get something. Thanks for your advice :), I'll continue researching and contact the finaid office.

[...] Average College Student graduates with: [...]

hello. i'll be a high school senior next fall. I've managed to be on top of my class (4.0) gpa and did very well on the SAT. Basically, i've covered all areas to be a good college candidate. My situation is this. My parents were first generation college attendees/americans that paid there own way from start to finish. They are both doctors and wealthy and can afford to pay for all my expenses but have told me they will not contribute financially and so I am on my own. Like I said, I've worked hard and top institutions are sending the letters since i scored really high on the PSAT and SAT.

QUESTION: What do i do? I don't want loans. How plausible is it that a university will grant me a full or partial ride? What do universities do with students like me? I don't qualify for financial aid because my parents are wealthy. But I'm not and they will not provide financial support period. Do I have to apply for some legal independent status or something so I can qualify as needy? Please help with advice and info. Feel free to post here or email me. THANKS.

How do I get from point A to point B when I don't have money at all?

I glimpse at what you wrote? What do I do to help me? I graduated January 2008.

Student Loans: 70,000

Credit Card Debt: 5,000

Saving: 0

I worked throughout college just to pay for my books and summer courses. My parents would only contribute 2,000 a year, 3,000 if I'm lucky, to my education. I switched major sophomore year in college and dropped an entire semester for which I could not get a refund for because it was too far into the semester and it was too late. I also lost my scholarships. I worked hard and graduated with honors and good grades but cannot find a half decent job. I'm lucky enough to have a roof over my head (mommy's and daddy's). I'm drowning in debt. I can't handle it anymore. I'm getting no help from anyone. I'm living on my credit cards and paying any bills that I have with my credit cards. All the money that I've saved have gone into paying down my credit cards. I'm not only embarrassed but ashamed. My dreams and goals somehow have gone down the tube. I feel like a total failure. And worse of all I feel alone.