Education is the silver bullet in world that thrives on success, but achieving academic goals is easier said than done. Millions of students struggle each year, though it isn’t in the classroom. Paying for school has become increasingly difficult in recent years, and parents are taking notice. According to a report from the College Savings Plans Network, parents invested $253 billion in college savings in 2015, a $5.3 billion increase from 2014. Join their efforts by learning how to save for your children’s future by reviewing the steps below. The process may be easier than you think.
Estimate your goal. Saving for college begins with setting a goal. Ask yourself the following questions:
Do I plan to send the kids to a public or private university?
Am I willing to cover 100 percent of tuition, fees, housing, etc.?
How many years do I have to save?
SavingForCollege.com offers a free calculator tool to help you estimate future expenses. It even allows you to choose a school. For example, suppose my 9-month-old son chooses to attend my alma mater, Purdue University in 17 years. Non-Indiana residents currently pay $42,270 for tuition, fees, room and board. Based on the estimate, covering 100 percent of the same education will increase to $349,644 by 2034. Thanks to inflation and the rising cost of education, my family needs to save $823 per month to reach our goal.
Consult your budget. Saving hundreds of dollars each month can strain any budget, and it’s important to determine how much you can save without sacrificing retirement funds and emergency savings. Talk to a financial planner about your options and look for ways to cut costs, including:
Reducing utility expenses by 15 percent.
Reducing food costs by cooking at home more often.
Using comparison shopping to find lower prices on clothing and household items. Ebates.com also provides cashback on thousands of online purchases.
Carpooling with coworkers to save on fuel costs.
Focusing on credit repair to reduce interest rates, lowering your monthly credit payments.
Find an aggressive savings plan. The cornerstone of college savings is wise investing. Accruing interest is an invaluable tool on the path to reaching your goal. Choose a plan that offers the greatest chance of maximum returns. Consider plans with:
Tax advantages. Many college savings plans are exempt from federal and state taxes as long as the funds are used for educational expenses. 529 plans — named for their IRS tax code — are the most popular choice and often have no contribution limit. Funds may also be transferred between family members, allowing you to use your savings for other children or even yourself.
No fees. Direct-sold savings plans eliminate the need for an investment broker and his fees, allowing you to keep a greater portion of your profits. In fact, plans sold directly often carry a fee of 0.5% or less.
Historic returns. Some 529 plans have a better rate of return than others, and it’s necessary to consider a variety before making a choice. Review each plan’s prospectus and compare returns for the past few years.
Retirement plans diversify invested funds to minimize risk, a strategy used by college savings plans as well.
Do some research and talk to a financial planner before deciding where to invest. The right plan could drastically reduce your financial burdens.
Look for money-saving alternatives. Many people believe saving for college should take precedence over personal retirement, but delaying your savings is neither wise nor necessary. The reason is variability. While there is little wiggle room when it comes to paying for retirement expenses, your child’s education costs are another story. There are plenty of ways to supplement your savings to give Junior the future he deserves, including:
Family heritage. There are hundreds of organizations that provide scholarships to students based on heritage. The Daughters of the American Revolution, Free Masons, racial groups and other organizations provide millions to qualifying candidates each year.
Private and federal grants provide worthy students with the funds they need to attend school, pay for supplies and earn the education they need. While terms vary, the majority of grant funds are gifted and do not require repayment.
Cultural and merit-based scholarships. The scholarship competition is fierce, but motivated candidates can earn thousands in education awards. Formulate a strategy by talking to an academic advisor about your child’s options.
Community college. Even if your child plans to attend a four-year university, community college is still a viable option during their freshman year. Earning transferrable credits from a local tech school will allow your child to complete his core requirements for a reduced price.
Learn how credit impacts college education. Credit plays a vital role in the education funding process. The average family cannot afford to cover college expenses completely, forcing them to rely on federal and private student loans for support. As an indicator of risk, credit determines the interest rate you or your child will pay on the loans over time. Securing a low rate in the beginning could save you thousands, opening doors for other opportunities — and, more importantly — allowing your child to enter the workforce without overwhelming debt. Download our free e-book, The Student’s Guide to Credit, to learn more.
Saving for college is a lofty task, but it’s possible with the right strategy and timeframe. Use your resources to help your child achieve their potential while protecting your finances; one should never eclipse the other.
Sarah Szczypinski is a financial writer specializing in personal money management and credit repair. Originally trained as a tech writer, she began her career writing online courses and administrative manuals for Fortune 500 insurance, HR and engineering firms.
After forming her writing consultancy, Top Drawer Publications, in 2009, Sarah began to write about personal finance. She quickly realized that technical content and personal finance have something in common: there are rules for success. Sarah spent the next five years compiling these rules and applying them to credit repair, budgeting, debt, savings, marriage, divorce and more. What she learned has yielded hundreds of articles aimed at helping consumers take a closer look at their financial habits in order to make lasting changes.
Sarah joined CreditRepair.com’s Expert Panel in September 2014. She’s excited to reach new audiences with her writing and continue to provide help, advice and (when necessary) some tough love to her readers.
