GRAND FORKS, N.D. — The last thing on Christian Klenner’s mind is whether he has enough money to pay for college, but it’s one of the first things his parents thought about when he was born.
Christian, 13 months, already has a bank account that tops $1,500.
For their only child, Rob and Anita Klenner of Grand Forks, N.D., plan to grow that fund, so he’ll have the money he needs when he’s ready to go to college. They enrolled in Children FIRST, a program that encourages parents — and others who want to contribute — to start saving early.
“We started putting money away right when he was born,” said Rob. “You’ve got to start saving now so he’ll be debt-free when he finishes college.”
“I want him to have a good future,” Anita said. “It’s best to save now, so we don’t have a big chunk (to pay) at the end.”
“I want him to have his own account, so we don’t spend it,” she said.
For many parents, rising college costs present a serious concern. Average cost of a four-year education is about $22,000 per year, according to Sandy Botkin, professor of accounting and taxation at the University of Maryland. The average cost of tuition continues to rise at a rate of 4.5 percent at private schools and 8.3 percent at public schools.
Rob is putting $10 each week into Christian’s account, plus small, unexpected checks. He has no specific goal, he said. “I’m still trying to figure that out.”
At some point, Rob may need to increase that weekly contribution, he said.
The Klenners want Christian to avoid future stress, Rob said, especially since many people finish school with lots of debt. “I think everybody has some level of debt. It’s not a good thing. Trying to minimize it, in the long run, is important.”
As University of North Dakota graduates who earned master’s degrees, the couple did not incur massive debt but knows many who did.
“Financial stress can take a toll,” Rob said. “If we can prevent it, why not?”
He hopes his son will receive scholarships, “but you don’t want to rely on what you don’t know,” and that his son will work, like he did, in high school and college to earn money.
“I don’t know where (tuition) will be in 18 years when he’s ready to go off to college.”
The projected cost of college in 2030 is $355,900 for four years at a private school and $102,900 for four years at a public university, according to Botkin.
The best thing parents can do to grow sufficient funds is to start saving early, said Jeff Hoplin, director of managed investment accounts, Alerus Financial, Grand Forks.
“That’s common advice, but it’s like someone said, the eighth wonder of the world is compound interest. It makes a huge difference if you start saving (when your child is) a baby instead of 16. That’s just the way arithmetic works. It’s really key.”
There are several ways to get started, he said. His recommendations:
Open a separate account that you designate for a college fund and agree not to dip into it.
“The advantage of this account is that you maintain control of those dollars,” Hoplin said. But there “are no benefits tax-wise.”
Open a “custodial” account — either a UTMA (Uniform Transfers to Minors Act) or UGMA (Uniform Gift to Minors Act), to which “anyone can make an irrevocable gift for the child,” he said.
In North Dakota, the person who opens the account, the “custodian,” may invest “up to $14,000 each year without triggering any gift taxes,” he said. The custodian is anyone who wants to help the child, not just the parent. He or she may withdraw any amount from the account as long as it’s for the child’s benefit.
“When a child reaches the age of majority — 18 in North Dakota and Minnesota — the money is the child’s to do with whatever way he wants,” he said. “This causes parents some degree of angst.”
Open a 529 account, an IRS option that allows gifts to a child’s college fund. North Dakota’s College SAVE program is an example.
“The donor controls the funds which grow tax deferred and are distributed tax-exempt as long as they are used for ‘qualifying college expenses,’ such as tuition, room and board, and books,” Hoplin said.
How much you invest in a college fund each month depends on the family budget, he said. “You don’t want to break your back and live in poverty.”
It also depends on “where parents think this child might go to school,” he said. “Then it’s arithmetic, working back from there.”
Between state colleges and Ivy League schools, “there can be a $30,000 to $40,000 difference” in annual costs, he said.
Children FIRST account
The Klenners got a jump-start on Christian’s college savings: $100 from The Bank of North Dakota for a Children FIRST account, part of College SAVE.
“I figure it’s free money out there; people should try to get it if they can,” Rob said.
Children FIRST is open to any baby, 12 months or younger, living in North Dakota. Anyone can apply for this account, not just the parent; only one grant is given per child. To apply, go to: www.ndchildrenfirst.com.
The program was started in 2011 as “an incentive for (parents) to save for college and get a little bit of a boost toward paying for a college education,” said James Barnhardt, College SAVE administrator at The Bank of North Dakota.
It allows parents — or whoever opens the account — up to four years to contribute the required $100 match, he said.
“We recognize that young people don’t always have the ability to save for college. We wanted to be sure that lower-income families had the opportunity to begin saving for their children at the youngest age possible.”
By meeting income eligibility requirements, the Klenners also received $500 for Christian’s account, which they were required to match, through College SAVE. They may apply for these funds annually for three years. College SAVE accounts can be opened for children age 15 and younger.
“According to Job Services of North Dakota, four out of five families qualify for one or the other program.”
The College SAVE program offers tax advantages, including a state income tax deduction, to eligible families.
“Hands down, there’s no better plan than using the state’s College SAVE plan,” Barnhardt said.
And what if, 18 years from now, Christian decides college isn’t for him?
“I’ll support him in anything he wants to do, Rob said. Not everybody has to go to college to be successful.”
But, “if he has the option to go, with the savings I have, I hope he’d give it a try.”
For more information on the College SAVE program, call 1-866-728-3529 or 1-800-554-2717 or visit: www.CollegeSAVE4U.com.
©2013 Grand Forks Herald (Grand Forks, N.D.)
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PHOTO (from MCT Photo Service, 202-383-6099): COLLEGE-SAVINGS