Interesting follow-up to college savings post

Okay, this might only be interesting to me.

Last week I wrote on my blind panic at the thought of college savings.  I didn't discuss this in my previous post,  but while I haven't invested much, I have been investing in a college savings plan for my son since he was a toddler.  We have an Oregon 529 plan for him, and were planning to add one for Mindy and start investing more into both since, you know, time is of the essence and all that.

However, Isaac now has just slightly more in his 529 plan than we have invested.  That's pretty pathetic, actually.  Managing to merely recoup our losses after nearly a decade of investing?  I wouldn't call that a good track record.  Yes, there were some rough years in there for the stock market, but our 401(k)s have performed much better. (Especially mine because it was inadvertently all transferred into a cash account right before the stock market crashed in 2008.  I still giggle whenever I think about it.)

So I have been reticent to fling more money at what has been a losing investment thus far.

Then this morning I was reading some articles online and came across Brent Hunsberger's It's Only Money column for today.  Apparently the Oregon 529 plan has been given a 5-cap rating by savingforcollege.com.

This is a sea-change from the bad press that the plan got a few years ago, when the state sued OppenheimerFunds for mismanagement of the plan's assets.  In 2008 when similar funds lost about 5% of their value, the Oppenheimer Core Bond Fund lost 35.5% of its value.  Ouch!

Bonds are supposed to be safe, boring investments. Investors expect to make very little money, but feel safe that their investment is not at risk.  This is where you put your child's college fund they are getting close to graduating from high school.  So for this bond fund to lose nearly half of its value, from $10.15 in May 2008 to $5.36 in March 2009 was a nightmare to families who thought they were being wise to save for college.  You expect to get whacked like this occasionally if you're invested in stocks, but not when you need that money for your kid's tuition in the fall.

In late 2009, OppenheimerFunds agreed to pay investors $20 million, over half of what they'd lost, and in 2010 the Oregon College Savings Plan changed management to TIAA-CREF, and they've been working on reducing fees ever since.

What do I do?  Do I trust the new, improved Oregon College Savings Plan and start saving more for the kids' college education?  Do I hunt down another investment?  Or do I just stick my head back into a hole and not think about it?  For the moment, I'm going to not think about it.  After all, tomorrow is another day.

The Ticking Time Bomb

The other day I was chatting with my mom, and the subject of investing came up.  My mom said, "At least your kids have college funds."  Awkward silence while I let the waves of guilt crash over me.

"Mom, only Isaac has a college fund, and he doesn't even have enough for a semester."

To be fair, we've only recently gotten our financial house in order, so to speak.  We had a money pit of a house in Portland that was heavily mortgaged.  We finally sold it for a pittance two years ago, and only paid off the loan on that house last summer.  I finally paid off the last of my student loans last fall.

However, Isaac will be eleven in August, and Mindy is hot on his heels.  2019 looms in front of me like financial Armageddon, but even though one of my favorite hobbies is financial forecasting (I am a CPA, remember), I don't spend much time thinking about college funding.  I don't know if it's just boring to me or if I'm in such a blind panic that it's better not to think about it.  College funding has the same effect on me as when Jacob talks about his IT work.  My eyes glaze over and my brain shuts down and I wake up a few minutes later not knowing quite what's going on.

My son goes to college in just over 7 years.

I was thinking that Pepperdine University would be such a nice place for the kids to go.  It's a Christian school with a very good reputation in a nice location there on the beach in Malibu.  What a nice campus to visit, and the kids could go away to school and only be a thousand miles away!  So I went to their website.

Did you know that the annual cost of attending Pepperdine is more than $50,000 per year, and they haven't updated their cost estimator since 2009?!?!

Blind panic.

Okay, so perhaps Pepperdine is a bad idea.  Who wants to go to LA, anyway?

I looked at the cost of attending my alma mater, Harding University.  It's more than 2,000 miles away and the location is, well, Arkansas, but the annual cost is less than half of Pepperdine.  Okay, so maybe it's not the best campus to visit.  There's no sunny Pacific Ocean, no bustling metropolis, no sterling reputation.  But it's affordable.


Then there's Portland State University, where I did my post-baccalaureate accounting studies.  It's about $10,000 a year for tuition, and the kids could live at home.  Admittedly, it's not as cool as living in Malibu, but through the lenses of cost PSU starts looking downright shiny, doesn't it?

Or they could go to Clackamas Community College and ride their bikes to class every day.  I hope it doesn't come to this, but thank heavens for community colleges, right?  Jacob and I have both taken classes at community colleges and the modest expense is a life-saver.

I know that there is financial aid available.  Hopefully my kids will keep their grades up and get lots of scholarships, but I doubt they'll qualify for need-based financial aid.  I thought about retiring early so we're broke when the kids go to college, but considering I'll be barely forty, I can't see that being a wise option.

The most common methods of college savings (other than pretending it's not going to happen) are 529 plans and educational savings accounts.  529 plans behave a lot like a Roth IRA.  The money is put in after taxes, the growth and income are tax-free, and the money can be withdrawn tax-free as long as the distributions are used for qualified educational expenses (college).  One of the nicest things about a 529 plan is that the money in the plan still belongs to the person who invested it (me).  If your kid turns out to not be college material, you stick their younger sibling's name on the account and pretend it was theirs all along.

Educational savings accounts are a lot like 529s, but they lost their shininess after 529 plans came along, mostly because the contribution limits have been pretty low and the money in the plan belongs to the beneficiary.  However, at least the way the law stands right this minute (I think), you can use the distributions for educational expenses even before college: private school tuition, for example.

So, how am I going to save for my kids' college education?

Uh . . . . . .

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Huh?  What?  Sorry.  I must have blacked out for a minute there.  What were we talking about?