College Savings
Finding Funds in the Family Budget
For many families, the excitement of going to college is overshadowed by the anxiety of how to pay the daunting bill. Here are some smart, realistic ways to prepare for higher education costs from day one.
Reasons to Save
- Money saved for college is money students do not have to repay.
- Because of interest rates on student loans, it is literally cheaper to save than to borrow.
- 67% of students graduating from four-year schools carried student loan debt, according to The Project on Student Debt.
- A 40% rise in the number of applicants for federal financial aid from two years ago has shrunk the average amount available to each student in need, according to the College Board.
Create a Savings Plan
- Determine a realistic college savings goal within your particular timeframe. Reevaluate your strategies along the way in order to meet your objectives.
- Work with your children to set up the plan.
- Put savings on autopilot. Most people do not miss the money they automatically contribute.
- As you earn raises at work, increase your monthly contributions.
- Always ask yourself, “Would this money be better off in a college savings fund?”
Research 529 Plans
- 529 plans are tax-free savings tools under federal tax code.
- When you save with a 529 plan, your money is stocked away tax-free as long as it is used for college expenses such as tuition, fees, books, etc.
Start Early
- Establishing a savings plan early puts time on your side. When your child’s high school graduation arrives, the more you have saved, the more options you’ll have.
- Parents who start saving from their child’s birth typically end up with more than a third of their savings goal coming from earnings. On the other hand, parents who wait until their children enter high school to start saving find that only about one tenth of their savings goal comes from the earnings.
Enlist the Family
- Make college savings a family affair.
- Rather than spending $50 on a toy or the latest gadget, have family members put the money in their college savings plan.
- Encourage your extended family to contribute to your kid's education. At the first few birthday parties, ask for a small college fund contribution instead of an expensive gift.
- More than half of grandparents contribute to their grandchildren’s education, with most expecting to pay 25% of the cost.
Reevaluate Along the Way
- As your child no longer needs daycare and diapers or you receive your yearly tax refund, redirect the money you save on those items into a college savings account.
- Since a student’s income and savings may weigh in to financial aid formulas, consider spending down their assets on something college-related ahead of time—like a car for transportation, rent, or a security deposit on off-campus housing. (Source: U.S. Department of Education)
Prepare in Advance
- As your children approach high school, think about enrolling them in Advanced Placement, dual enrollment, or the International Baccalaureate program, in which they can earn free college credits. This means less tuition and time spent in college.
- Students can save on their end by working before they graduate high school and earn money toward higher education costs.
- Even if the student spends the money on himself or herself, this means less money spent by parents before kids go to college.
- Make summers count by focusing on enriching, possibly application enhancing jobs.