HELP! What to do for my daughter's education?

I am a bit distraught about my financial situation.

I am 30, recently married and have a wonderful new stepdaughter to boot. My wife is 29. The problem: our daughter is 11 years old and we haven't saved a penny for her.

You can probably detect by the ages that my wife had our daughter when she was very young. Our daughter's father has been completely out of the picture and did not pay child support until last year (my wife was worried that she might lose custody of her daughter by going to court). Despite having a child so young, my wife went to university and got two degrees and $100k in student loans which she used to pay for the degrees and raising our daughter.

I am very proud of my wife and daughter and what they've accomplished. My concern now is that I make $110k / year and I worry that this will make us ineligible for student assistance for our daughter. At the same time, I don't want to stop making 401k contributions and we don't have any money on top of that for additional savings (we live in the Bay Area, our rent is exorbitant and we're paying that massive student debt).

Does anyone out there have suggestions of how to approach this? Should I reduce my 401k contributions (we have about $97k in 401k and Roth IRAs)? Or is there something else I should do to set ourselves up so that we can support our daughter's education?

Oh, and by the way, we have another child on the way this August. The fun has just begun!

I love this quote, because it is so true - "Save for retirement first and college second, because nobody is going to lend you money to pay for retirement." If it was me I would pay down the current college loan and fund your retirement. When the college loan is paid off (if your are funding your retirement at the level that will meet your goals) divert the loan payment to a college saving account for each of your children. You may not be able to save enough or get assistance, but you can get a loan for an apprecaiting asset - your childrens education.

Also depending on your situation buying a home would help you build your net worth. I realize you live in one of the most expensive housing markets.

Although I would almost always agree that it is wiser to save for retirement than for college, in this instance, college needs to be the number one priority (IMHO). Why? Simply because there are only 7 years remaining until YoungFamily's daughter begins college. Unless serious savings effort is made right away, she may well finish college with her own very heavy student debt burden.

The bright side for YoungFamily is that his first daughter is done with college when he is in his early 40's - hopefully the prime earning years. At that point he will be able to reprioritize. In the meantime, here are some things I would consider doing:

1. Fully fund Roth IRA's (can be used for retirement or college; minimal impact on financial aid);

2. Fully fund any retirement program with significant employer match;

3. For any savings above this, I'd set up 529 account and start systematic monthly savings program. Set up an account for your expected child too.

4. Join Upromise. The reward earnings (although minor) do add up over time -especially if you can develop a network by getting friends/relative to register with the program for benefit of your child. Free college money with minimal effort.

5. If you haven't done so, find a college aid expert to discuss both your daughter's situation and also any possibilities to lower the costs on your wife's student debt.

6. A house could be a good investment in a hot market like the Bay area. The equity build-up over 7 years could provide a good back-up tool for paying college bills. The impact (+ or -) of home ownership in terms of financial aid can be discussed with your expert.

Good luck!

Congratulations to you both for your child on the way. I agree with the conventional wisdom that you should invest in your retirement first. Additionally you should think about setting aside some money for a "rainy day" fund (e.g. 3-6 mos. of your take home pay), particularly if you job is unstable. California offers excellent education options. Their state schools are very reasonable. Additionally, community colleges (at least where I live) have really improved their curriculums and offer even better financial value. From a financial standpoint, I regret going to a private university for my first two years of college when I could have gone to a excellent community college and then transfer to the neighboring university. Consequently, both my grades and bank account suffered by making this decision.

Good Luck to you.

gregvig
Age 36
Waterford, NY