30-Minute Money Solutions: A Step-by-Step Guide to Managing Your Finances

Chapter 23. Find the Right College Savings Vehicle

We've all heard tales of competitive, well-heeled young parents applying for elite preschools when their children are infants or even still in the womb. But one of my friends upped the ante by saving for her child's college education before she was expecting a baby or even dating her husband. That may sound strange, but her logic was straightforward. She knew that she wanted to have a child no matter what the future held, so she figured that getting started on college savings would help her baby's college fund fully benefit from the power of compounding. Ten years and three little ones later, she and her husband feel grateful for her foresight.

The more I've talked to parents and would-be parents, the more I've realized how rare my friend's preparedness is. Most will tell you that their children went from onesies to "Can I borrow the car keys?" in the blink of an eye, giving them little time to devote to building a college fund. Parents also have to juggle saving for college alongside competing financial priorities, including squirreling away money for their own retirements. (Part Three provides guidance on how to sort through competing financial priorities, but the short answer is that retirement savings should always trump saving for college. The reason is simple: You can't get a loan to pay for your retirement, but your child will probably be able to borrow money to pay for college.)

It would also be hard to blame would-be college ...