Reuters Money

Catherine Onofrey is going to Georgetown. Or Harvard or the University of Illinois. Wherever her top choice is in 2028 — the year this one-month-old New Yorker should graduate from high school.

If, that is, her parents can sort out how to start saving for college.  “There is enough going on in the first months of one’s child’s life to make this an easy thing to put off until a quieter moment,” Catherine’s dad, Nick Onofrey, said. “It is hard to know where to begin.”

Indeed, and saving for college is no small commitment. More newborns arrive in August, September and October than any other period of the year, and parents of this fall’s crop will need to put aside at least $200 per month from birth to finance tuition for four years at a public university and $430 per month at a private institution, according to Mark Kantrowitz, a financial aid expert and publisher of FinAid.org.

The obvious vehicle for most families today is a 529 savings account, whose investment income is tax-free if used toward education-related expenses. These state-sponsored plans have been battered over the past two years by stock market fluctuations. Still, they offer parents a wide variety of investment options to choose from, and many funds have recently slashed their fees. The Vanguard Group, for instance, this week cut fees on its College Savings Plan, based in Nevada, in half on some portfolios, to 0.25 percent, or $25 per $10,000 invested, from 0.44 percent.

Which 529 fund to choose, however, is where many parents get hung up. Individual states administer these accounts, but parents needn’t enroll in their own state’s plan — though doing so sometimes offers a income tax break —  and, with the exception of pre-paid tuition plans, the proceeds can be used at any four-year and two-year programs nationwide. It helps to consider a plan’s past performance, while also paying attention to high fees. According to the website SavingforCollege.com, a comprehensive resource on 529s, Ohio, Virginia and Utah offer among the lowest-cost options; Montana and North Dakota are on the high end.

“Pick the 529 plan with the lowest fees,” Kantrowitz advised. “All else being equal, one should go with one’s own state plan if the state offers a income tax deduction on contributions.”

It is best to keep savings in a parent’s name rather than a child’s. When colleges assess a family’s need for financial aid, less than 6 percent of the monies in parent-owned 529s are counted, whereas a child’s assets are considered more heavily. Even better are grandparent-owned accounts, which bear no weight on financial aid decisions. “One of the benefits of a 529 plan is that it is treated as though it is a parent asset if the student is a dependent student,” Kantrowitz said.

Of course, 529s aren’t the only saving tool available to parents. More than 12 million people have signed up for Upromise, the free program under which a small portion of participants’ everyday spending goes into a college-savings account. Now there’s also Ugift,  an online giving platform introduced in 2008. Parents can register, say, an upcoming birthday or graduation and ask friends and family to add to their youngster’s 529 account. More than $5 million in contributions have been made to date.  “The beauty is that instead of just buying another toy or game,” says Jeff Howkins, president of Upromise Investments, the country’s largest administrator of 529 plans, “guests can give children the gift of college.”

What if a child reaches 18 and decides not to go to college? Or, by some miracle, he doesn’t use the full amount in his 529? Then the balance can be transferred to another beneficiary, such as a sibling or even the parents themselves, or in the worst-case scenario, withdrawn and taxes plus a 10 percent penalty deducted.

As the cost of college continue to skyrocket, and financial aid or loans seem inevitable, some parents may wonder if saving at all is still worth it. Do the math, however, and it is usually cheaper to save than to borrow. “If you save $100 a month for 10 years at 6.8 percent interest, you’ll accumulate about $34,400,” Kantrowitz said. “If you borrow this amount, you’ll pay $198 a month for 10 years at 6.8 percent interest —  or almost twice as much.”

Howkins adds, “It makes a tremendous difference if you start at age zero. Even the smallest bit put away now will grow before your eyes over the next 18 years.”

Saving could also lead to more choice down the road. That’s why Washington, D.C. couple Pamela and John Rayne have waded through a myriad of 529 options to pick the best one for their 13-month-old son, Evan. “Ultimately, we know we’ll probably have enough to maybe cover one year and we’ll have to borrow anyway,” Pamela Rayne said. “We just don’t want cost to ever be a barrier.”

Photo: REUTERS/Catherine Onofrey/Handout