The cost of college has been getting higher and higher over the years. Students are now submerged in debt that they spend their lives and careers trying to erase. Parents of a baby born today would have to save $385 a month in order to afford housing and tuition at the average state school, according to Kent Smetters, professor at the University of Pennsylvania’s Wharton School. If you don’t start saving until the child is in middle school, the required monthly savings amount jumps to $780. (source) I don’t know about you but I don’t have an extra anything hanging around.
- Start Early – The earlier you start the more you’ll save. That’s just the simple mathematical truth.
- 529 College Savings Plan – A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It offers some great tax benefits.
- Get your kids saving – Teaching your child to start saving early is a must. There are some great ways to do this but the point is to do it. Some families start early for this purpose. The money they save goes to college or even an automobile when they can drive. Imagine your relief if your children can save for everything themselves.
- Make it a habit – If you get yourself used to setting aside money for savings then it will be much easier every year. Even families that live paycheck to paycheck should try to set aside what you can. A little amount is better than nothing.
- Have a smart kid (or an athlete) – Students that work hard, graduate early and with high achievements are more likely to receive scholarships. My sister graduated at the age of 16 and received a few thousand dollars from local businesses to attend college. If your child is good at a sport or other performing arts taken seek out the scholarship options.
- Prepay – Some schools allow you to prepay your child’s tuition. It’s becoming more rare because as rates increase schools want to make their money. But if you are sure your child will go to a state school then it could be very beneficial because you lock in the rates of today instead of when they enter into college. Just beware, if your child doesn’t end up going to the state school you may not get all of your money back or be paying high cancellation fees for withdrawal.
- Upromise – Upromise is a fantastic and easy way to save money for college. Register your store cards (Publix, CVS, Kroger, etc.) to receive store rebates. Register your debit and credit cards and when you eat at participating restaurants you’ll earn a percentage back. The more you eat out the more your percentage rises. Shop online through the Upromise site to earn cash bak on your purchases. You can even invite the friends and family to pitch in. They can register their cards and give you everything they earn. It’s SO easy.
- Custodial Accounts – These are account that you set up in your child’s name that you can control. We’ve recently set up a custodial account for our oldest. We’ve emptied her piggy banks and birthday card money into this account. It earns interest each month and one day she’ll have
- Coverdell education savings accounts (ESA) – Coverdell ESAs function very much like an IRA but for education, not retirement purposes. You make a contribution of up to $2,000 a year with post-tax dollars. The money grows tax-free, and neither the contribution nor the interest is taxed when you make a withdrawal, as long as you use it for education purposes.
- IRA and Roth IRA accounts – Traditional IRAs come in two forms — deductible and nondeductible. With the deductible IRA, your annual contributions are tax deductible, but when you withdraw money from the account, you’ll be taxed on both your contributions and your earnings. With the Roth IRA, your contributions are not tax deductible, but your earnings are tax-free if you withdraw them after the required five-year holding period and use the money for qualified expenses such your child’s college tuition.
Hopefully these tips will get your in the right direction. Even if you’d like to start small with something like Upromise just remember that at least you’re doing something!
This information sourced from Genworth Financial and myself.