|College Savings Plan||National Coverage||Online Application||View Rates|
|Yes||Yes||Try Capital One|
|Yes||Yes||Try CIT Bank|
No matter how young your kids may be, it is never too early to start thinking about saving for their college costs. In fact, the sooner that you start putting money away for college, the easier it will be to budget it in. There are many things to consider when saving for your child’s college costs and we have listed quite a few of them below.
Set a Savings Goal
The most important preliminary step is to decide what kind of goal that you want to set for saving. Remember, not every college education is the same and you will want to pick exactly what you are saving for. The costs between an Ivy League school and a community college differ exponentially, so be sure to define real goals and save toward those. College yearly costs range something like:
Community College – Typically under $5,000
State College or University – Under $10,000
Private Institution – $30,000 or more
The above are only averages, so these costs can still vary greatly. Keep that in mind when deciding what you want to save for. The other thing to consider is that this is only the tuition cost and fees. Meaning, this cost does not include other required expenses, such as:
- Room and Board
- Class Supplies
- Other Miscellaneous Costs
How to Help Fund Your Child’s College
There are multiple ways to help fund your child’s college education. Several of them obviously involve continued investment from you, but others can also lend a helping hand. Potential funding sources include:
- Student Loans
- Parent Savings
- Student Savings
- Student Employment
Some of these are obviously better than others. Where possible, it is ideal to avoid student loans completely. While student loans do help get people into college rapidly and into a good college, they can be quite burdensome later on. These loans can accumulate massive amounts of interest, which can leave you or your child making payments long after they are out of college. Plus, not every career has the same financial return, which means that these loans can be even harder to pay off with some careers.
If you have the ability to put enough money away every year during the time of your child growing up, it can be incredibly helpful when they are ready to attend college. As mentioned above, this first begins with defining your goals for the college that your child attends. After doing this, you will have a better idea of how much you need to put away each month to reach the goal. If you’re having trouble figuring these calculations out, there are online college savings calculators that can help. There are also some strategies and accounts that can help you when it comes to saving.
Regular Savings Account
You can go with a basic savings account through your bank if you are confident that you will be able to put a decent amount away every month. The one piece of advice here would be to shop around banks for the best possible interest rate to capitalize on your contributions. Of course, these accounts do not come with potential tax benefits like other methods can.
Technically, a Roth IRA is a retirement savings account, but it can also be used for education costs. Any contributions to this account are not tax deductible, but any earned interest is free of taxes. You can put up to $4,000 per year into this account.
529 Plans are state sponsored plans that help you to save for and sometimes prepay college tuition. Being that these plans are state sponsored, they are set up to pay for state sponsored public college or university. Keep that in mind if you are looking at out of state institutions. These plans have great tax benefits for your savings, as you will not pay state or federal taxes on the money that you put away in this plan and when you take funds out, they are not federally taxed. Whoever owns this account will be in complete control of it, which means that your child will not be able to take any funds out of it. If you are the account owner, you will be the only one who can decide where the money is used.
When it’s Too Late to Start Saving
Maybe you were struggling financially when your child was born or didn’t have quite enough to put away. Don’t feel bad, as this is far from uncommon. If you’re in a better position now or still want to find a way to pay for your child’s college, it is likely time to consider student loans. As mentioned above, these are not the ideal route, but it doesn’t mean that they cannot be helpful. Before taking out a loan, be sure to look into possible grants and scholarships, as these can help greatly defer costs. Then, fill out the Free Application for Federal Student Aid (FAFSA). This application allows the student to receive possible financial aid and federal loan options. There is a deadline for this application that varies by state, so be sure to get it done in time.
Once you have completed FAFSA, you will receive a letter detailing which federal loan options are available, which may include:
- Direct Unsubsidized Loans
- Direct Subsidized Loans
- Direct PLUS Loans
Subsidized loans are the ideal type because the interest is paid by the government while the student is in school, as well as during deferment periods. Unsubsidized loans are essentially the opposite, with the borrower being responsible for the interest during all periods. Direct PLUS loans are only offered for graduate students and parents.
If you do not go with a federal loan, than private loans are the other option. While these can have their own merits, they do not have the protections and benefits that can come with federal plans. For instance, if a student goes on to work in the public sector, they can be eligible for student loan forgiveness under federal loan programs.