The cost of a college education has dramatically risen over the past couple of decades, and there’s little doubt it will continue to increase. So as parents facing this potentially enormous bill, what can we do?
1. Start saving early. It’s been drilled into our heads to start contributing at a young age to retirement, because of the power of compound interest, and the same is true for saving for college costs. According to collegesavings.org, a family that begins setting aside just $50 a month when their child is born can accrue over $21,000, in an account that earns 7% interest per year, by the time the child turns 18. Of course, that amount won’t cover the complete cost by any means, but it’s definitely a great start. And if you increase the amount of contribution each month, your savings will dramatically jump over those 18 years.
2. Contribute to an educational fund. You have options, including a 529 plan, which grows money tax free, or even a brokerage account designated to your child’s education. With a brokerage account, you can take out the contributions and earnings tax-free if used for qualified college costs. An Educational Savings Account is another option, which offers the possibility of using the funds to pay for educational costs beginning in kindergarten all the way through college. Your tax advisor can help you determine if this is the plan for you.
3. Look into prepaid plans. If your plans for your child’s education are likely to include a state school, many states offer pre-paid tuition plans that allow you to lock in the current rate of tuition instead of what those tuition numbers will be in 18 years.
4. Research scholarships. Scholarships are like found money! There are so many different kinds of scholarships, especially little known ones that might not have a large number of applicants. Making the time and effort to research and apply to any scholarships your child qualifies for can save you thousands in the long run. Think of scholarship research like a part-time job, because the money you earn from scholarships could definitely be well worth your time.
5. Shave off some of the soaring costs of a four-year institution by earning college credit in high school, or taking classes at community college. High school students can earn college credit, which means they could graduate early. And most core classes at community colleges are easily transferred to a four-year school, but can be taken at a much lower cost.
It’s difficult enough to think about a child leaving the nest – don’t let financial burdens be part of the worry of sending your child off to college. Start saving now.