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  • Writer's pictureBridget Sullivan Mermel CFP(R) CPA

How to Save Money For College Fund: Don't Save for College?

When it comes to how to save money for a college fund, John Scherer and Bridget Sullivan Mermel are unconventional financial planners. Here, they discuss the hows and whys of why they think that saving for college is over rated.

It's not that you shouldn't save anything for college. It's that there are more things to consider than people usually do. From their perspective on what actually happens, they see a lot of options when it comes to college planning.

00:00 Welcome!

00:40 John’s perspective (Wisconsin)

03:07 Bridget’s perspective (Illinois)


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John: Many people worry about having enough money to pay for college. In today's episode, we're going to talk about what are the important things you need to think about with college savings and take action on, and more importantly, what are the things that are just hype that you can safely ignore? Hi, I'm John Scherer, and I run a fee-only financial planning practice in Middleton, Wisconsin.

Bridget: And I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago, Illinois. And before we get into college planning, John, let's remind everybody to subscribe. That helps us with Google and gets our ratings up, but mainly it helps us attract viewers. We really appreciate it if you subscribe. So John, let's get into this right away. What do you tell people about how to save for college?

John: Yeah, it's interesting. It's a big thing, right? You have kids and there's a lot of publicity about the cost of education and how much it's been increasing. And now we have higher inflation. What is that going to mean? And golly, some of the numbers get pretty scary. We were just talking before we hit record here that some of the top colleges cost 50, 60, $70,000 a year. We're talking a quarter million dollars or more in some cases to pay for college. And how do we think about this? How do we do this?

And I'll tell you, there're a couple of things that I really like to look at with people, and one of them is the idea that it's not like your kids cost you nothing and then when they go to college, suddenly it cost you 50 grand a year. I think at Madison here, the UW is more like $25 to $30,000. So do you want an in-state school versus not a state school and all those sorts of things; there’s a separate discussion we can have about the value of that decision. But when you think about the kids going to school, you look at what's included in the cost of school. And of course, it includes tuition, it includes room and board, it includes travel, it includes entertainment.

And there're several things where you go, “Hey, hang on a second.” When your kid was a senior in high school, you're paying for all these things. Now it's included in that cost of education. You go, “Well, maybe there's some transition in there.” And the USDA, which is interesting that the Department of AG would put this out, but every year or two they do a study--and you can Google it—about the cost of raising a child on average, depending on if your income level is below $50,000 and some different categories. And it ends up being something between 15 and $20,000.

I think it's more expensive when the kids are younger and then it gets slightly less, finally as they get towards 18, it gets more again. But 10, 15, $20,000 a year is what they estimate the cost is. And so, it's not like you're going from zero to $30,000 to go to Madison, and not all those translate, but it's like you're going from 10 to $25,000. There's some increase where it costs more to go to college than having the kids at home, but it's not this giant numbers. When you can take off a third or maybe even a half of that number, you go, “Oh, suddenly it's a lot more manageable compared to what I heard about or what the sticker price is.”

Bridget: And if you think about how much teenagers eat…

John: Yeah.

Bridget: And the Illinois number that we usually use is about $35,000. So, if people are going to University of Illinois Urbana-Champagne, we usually talk about $35,000 a year. That's kind of our starting point. And I agree with you that people underestimate how much money they're going to have around. That's one big factor. You're saving some money by having your kids go somewhere else.

John: That can be a really good exercise for viewers. What we talk about with our clients is think about the change in expenses because you don't think about it when you're in the middle of having kids and things go on, but the music lessons, the sports clubs, the food—my two boys aren't quite there yet, but we're going to have an interesting food bill. You think about all those things that come into it—the vacations, the travel, the entertainment—and you go, “Oh, yeah, that's right.” When your kids are on the school's food plan, and when all those things sort of fall off, you go, “Oh, yeah. It's not quite as scary as it might appear to be.”

The other thing that I bring up with people is for many folks when the kids were little, they had daycare, preschool, and those sorts of things, and nobody ever talks about saving for daycare. I often ask, “Well, did you talk about saving for daycare?” We just talked with someone about this. When I went through it myself, it was $2,000 a month for daycare for the two kids. That's approaching the price of one college tuition. I don't think I've ever talked with anybody who saved for that. Here you have a family, and now you're paying for childcare, and somehow it works. And it's the same as, in my case, paying for one kid to go to school.

It's not a direct correlation, of course, but you go, “Oh, wait a minute.” First of all, we're paying something for them just living at home, then when they go to college, it's a transition like we just talked about. Jeez, when the kids were born, we somehow made the numbers work. I'm going to save less or spent less here; do these other things. If I could do that when the kids were two and three and four years old, maybe I can do it when they're 22 years old to be able to pay for college. It gives you some of that feeling of, “Okay, wait a minute, I don't need to panic about this thing.” You need to be smart but not to panic.

We'll talk about some of those other things, but the first thing we do is sort of take that scariness away. That's how I approach it anyway, by saying, “You paid for the kids when they went to preschool, right?” And they often say, “Oh, yeah, that's right.” Thus, it's not the full sticker price. It's something less than that just because of what you're spending on them when they're 15, 16, 17 and 18, and then you go, “Okay, we have to plan for that, but maybe it's a third of the number third less or half less.” That makes it much more digestible and helps to take some of that pressure away.

Bridget: Yeah. And I think that there's a misconception about how much you should be saving for your kids’ school compared to what everybody else does. Okay, so statistics that I've seen say that 20% of the people, no matter how much money they make, don't contribute to their kids’ education; they spend zero. That's an interesting statistic, and I'm going to give the parents the benefit of the doubt and say that there's a necessity happening at that point in time, so they spend zero.

And then there are other people, on the other end of the spectrum, who say, “No, I want to pay 100%.” But that's one end of the spectrum, and it's actually not something I personally advocate. I think that getting kids to work, making sure that they have skin in the game, gently helping them understand economics, so they say, “What am I spending? How much is housing? How much is food costs? What is going out to eat? What are ramen noodles? All those things and letting your kids struggle with it a little bit...

John: Yeah. Learning experience.

Bridget: …is all helpful for when they become young adults. There's a hype that everybody is paying for everything.

John: Right. That's a great point.

Bridget: Actually, that's not the case. And somewhere in between is what I actually advocate for most people.

John: And I don't know if it's exactly this, but we talk with people about a third, a third, a third. Listen, mom and dad, you come up with a third of the college expense, expect your child to work and earn a third of it, and then take a third out in loans. And even if you plan as a parent to pay for the loan (we have a lot of folks that will say, “I want to pay for another third”) to have your child learn what it's like to apply for credit and think about that in a controlled environment can be a really useful, and it can help children to make decisions. I could go to a state school and pay 25 or $35,000. I could go to a private school and pay 50 or $60,000. And if you're on the hook for a third of it, that's a different metric for things, right? It helps with a number of things that don't just have to do with college.

Bridget: And I think high school seniors or freshmen in college can conceive of 10 or $20,000. It's kind of hard to even get your brain around the whole cost of college when you're that age, but they can do the multiplication at this point. How many hours do I need to work to make this much money?

John: And if they can't, then college is probably off the table anyway, right?

Bridget: Right. They should be able to do the multiplication. They should be able to figure out, “How much do I need to work to be able to do this and what kind of job do I have to get?” Those are two big things to think about: a) you're going to be having more money around, and b) both of us advocate for kids having some skin in the game.

John: We just had a client come in and mention this exact issue. We have a number of folks where their high school or elementary school kids go to private school. And again, you talk about what preschool looked like, what daycare looked like. Well, if your child is going to a private school, you got to remember that translates over. There're even more expenses here. These are the typical expenses that USDA talks about.

Well, if you're paying for daycare, if you have private school tuition or you have daycare, those sorts of things, those things translate over. So that jump maybe is not quite as big as it should be. And then we go, “What's the reality of this?” And then think about having some skin in the game. Then we get to what are the things that you actually need to do, or you should be thinking about. And one of the things that we believe in is that money is money.

And what I mean by that sometimes we feel like, “Oh, I need to save in this account.” A 529 college savings plan is the big one here. And those can be great tools, but they're just a tool. And I talk about it in terms of the old days; I'd have envelopes. There's my vacation envelope, there's my birthday gift envelope, and I'd get money and put it in the envelopes. So I have these things set up.

It's totally fine, but as long as there's money available to pay for college, do you really care whether it comes from your savings account or your 529 account or your Roth IRA or whatever is the best place based on your investment and your tax situation at that time? So having enough, I think, is really important. Having it in the right spot is much less important as far as I'm concerned.

Bridget: Yeah, I think some people, it just makes them feel better at night to go to sleep if they know that that's all wrapped up and taken care of. But I, as a financial planner, don't like to actually advise people to put more than half of the college savings in 529s. I like to have parents just have a savings account or an investment account with the other half of that money that they can use for their own expenses if they need it or their kids’ college. And they can figure that out. They can figure out where to take the money at the point where the kids are going to college.

And one of the pluses of that money is that it's so much more flexible. You can use that money however you want. Sure, you need to pay tax on the growth, but guess what? You can use it for whatever you want. So if your kid wants to take a gap year, if you want to say to your kid, “Look, if you go to a less expensive college, I will incentivize you by giving you a home down payment or a car when you're done,” you could work it that way, and then you've got that money there. You can't do that with a 529. You can't take a gap year with a 529.

John: We could do a whole episode about 529s and some of the specific vehicles, but we think 529s are great for when grandparents want to give money and have it dedicated to education—those sorts of places. And just real briefly, one of the things people get in their head is that they need to have a 529. The benefit in a 529 is that the growth comes out tax free. So if your child is 17, and they're going to college in two years, depending on how much growth is in there, you might not save very much. It's not wrong, but it's not like there's some magic bullet to put money in there to take it out at a much higher value. It's the long-term growth of it that can be tax free

Bridget: In Illinois, if you are a resident of Illinois and you contribute to the Illinois 529, you also get to reduce your taxes by the amount that you contribute, up to $20,000 contribution. And the Illinois tax rate is 4.95%, so you can save $1,000.

John: Yeah, so it’s something. And in Wisconsin, it's a much lower threshold. It’s something, but it's not like, “Oh, I have to do this, or I’m totally missing the boat.” Yeah, it's a nice thing, but it's just a tool. We often recommend Roth IRAs. Maybe that's the last point to make. Roth IRAs can be useful. We could go into that if you're interested. Drop a note in the comments, and we'll talk about that.

But one of the things I think is really important to make sure that people know before you leave is that taking care of your retirement savings is more important than saving for college, because there's student aid, there're loans, there're ways to pay for college. If your child is smart enough to go to MIT or someplace, they can get there. It might not be how you want, but they can get there. If you're not prepared for retirement, there's no financial aid for retirement.

Bridget: Right.

John: Prioritize what's the most important. I think this is a good place to wrap things up with our conversation here.

Bridget: Great. I'm Bridget Sullivan Mermel, and I've got a fee-only financial planning practice in Chicago. And this is John Scherer. He's got a fee-only financial planning practice in Middleton, Wisconsin. And we're both proud members of ACP, which you can find at If you're looking for a financial planner, feel free to reach out to John and me or look at

John: That's right. And don't forget to hit that subscribe button. Until next time.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.

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