Turning Tax Refunds into College Savings

By Jonathan Hughes

My wife and I were blessed to have our first child last year. If you’re a new parent, or have talked to one recently, you're learning it really is a whole new world. With more needs to meet and less to go around, my wife and I find that we have to think and rethink every financial choice we make. For example, right now we’re trying to decide what to do with our slightly bigger than usual tax refund. I imagine that there are many other young families in the same situation as us right now—about to receive the biggest sum of discretionary money we'll likely see all year, and no shortage of important things to spend it on.

Part of MEFA’s mission, and something that I have done personally in my job here, is to try to convince parents how important it is to save for college and to start as early as possible. One of the savings strategies that we recommend is to use some of your tax refund to start or contribute to your child’s college savings fund.

So now here I am with a chance to put my money where my mouth is. And to my chagrin, it’s a little harder than I imagined. The thought of paying off a credit card balance, or getting that new furniture for the bedroom, or going on vacation is admittedly more tempting than saving for college. But here’s why I’m still going to do it:

• I’ve talked to many people who have saved for college and many who haven’t. Those who have saved are generally better equipped to navigate the financial aid waters when the time comes, in part because they are much less anxious. Thinking through college costs is not completely new to them, and they have done some preparation. No one has ever regretted saving for college.

• I know I can’t save the whole cost of college, but I probably don’t have to. Because of the amount of financial aid available, you are not likely to pay the entire cost of college yourself. And since the financial aid formula counts a family’s income more than their savings, I know that saving early and often for my son won't affect financial aid very much. A little savings can help a lot.