Don’t Wait to Start on a College Savings Plan

Outside of retirement and purchasing a home, there may be no more important financial goal that requires preparation than your children’s higher education tuition. While saving for college may seem daunting, planning early and saving thoughtfully can make the goal more attainable for many parents. Here are four steps that can help along the way.

1. Estimate college costs

Take a realistic look at what higher education costs are likely to be once your child is ready to attend. Even if your son or daughter is still learning to walk, you’re able to estimate your college bill. Historically, the cost of college has risen faster than the standard rate of inflation. According to The College Board’s Trends in College Pricing 2016 report, the average tuition and fees at public four-year colleges increased at an annual rate that was 3.5 percent beyond the broader inflation rate between 2006 and 2016. Check out free online college savings calculators to estimate tuition and fees at public or private institutions, such as the website SavingforCollege.com.

Use the estimate as a guideline for a conversation with your spouse about how much you’d like to contribute to your child’s education. Do you wish for your child to contribute? Will you cover the cost of books, room and board, and extracurricular fees? If you have multiple children, what will your financial strategy be if your children choose different college paths (e.g. private school vs. public, 2-year vs. 4-year, graduate school, etc.)?

2. Start setting money aside as soon as possible

There is no substitute for saving. Your future self – and your child – will thank you for starting early. Craft a habit-forming strategy, such as saving a set amount each month, putting aside a regular bonus or raise, or saving your tax refund. Remind yourself that even a modest amount will make a big difference in tackling your child’s tuition.

When you’re ready to put your money to work, choose a savings vehicle that is right for your financial situation, risk tolerance and goal amount. One of the most popular options is a 529 plan, which is specifically designed to help families save for higher education. Money invested in a 529 is run by a state or educational institution, although you have a choice of investments. When money is withdrawn for qualified education expenses, no taxes are due on earnings accumulated in the account.

Other tax-advantaged savings options include Uniforms Gifts to Minors Act (UGMA) accounts, Uniform Transfers to Minors Act (UTMA) accounts, tax-exempt savings bonds, and Coverdell education savings accounts. There are also taxable account options, allowing you to choose the vehicle that works best for your family.

3. Research financial aid options

It may be difficult to save enough to cover every education expense, particularly for families with multiple children or if you’re balancing other financial goals. Scholarships, grants and loans may help you fill potential gaps. The U.S. Department of Education allows you to forecast your family’s eligibility for federal student aid before you fill out the Free Application for Federal Student Aid (FAFSA) when your student applies for college. Even if you don’t anticipate needing federal aid, completing a FAFSA may be required if your child wants a work-study job or to qualify for merit-based aid through the institution. Many scholarships are available to high schoolers of all grades, so encourage your child to research local opportunities.

4. Revise your savings plan as your child ages

Periodically revisit your strategy, to make sure it’s on track to meet your financial goals. Remember, you can re-prioritize and save more as college move-in day approaches. As your child ages, bring him or her into the conversation. Discuss the level of support you will provide. Help your child consider various career paths and higher education options, evaluating them to see if they are realistic and within your budget. While other factors will play a role in determining the school that is the best fit for each student, it is important to factor in the cost as one of those considerations.

Overcoming the challenge of paying for higher education starts with a plan. Understanding the real costs of college tuition and fees helps you craft an effective strategy to reach your financial goal.

Why College Tuition Rises

When students first begin college, many have the new responsibility of paying their bills. These bills can include car payments, insurance, cell phone payments and also paying for college.

While many of these bills will remain consistent from year to year, this doesn’t hold true for college tuition. With each new school year comes the shock most students feel when they see how much tuition has risen from the previous year. Many are then left wondering not only how they are going to pay the bill, especially if they have to complete an unpaid college internship, but also why college tuition has risen once again.

College tuition increases each year because of many factors. Maybe your university is renovating part of campus or is putting up a new building. If this is the case, part of the cost of these projects are often times passed onto students through activity fees and other tuition fees.

College campuses experience increased upkeep costs from year to year and have to come up with the funds to cover these costs so they can, in turn, charge more for college tuition. It also costs more to attend prestigious universities, so if your university has experienced an increased rank or has switched sporting divisions, there is also a chance that tuition will increase in response to these changes.

There is always an ongoing debate over whether or not college tuition increases too much from year to year. It costs a lot to maintain a university and also to continually improve the facilities and learning venues for students at a university so it is expected that part of these costs will passed on to students by way of tuition increases. So where or not you think tuition increases too much each year, it is probably a good idea to plan ahead and save enough to cover an increase. You should especially plan ahead is you are working an unpaid college internship. You might want to think about getting a part time evening job in addition to the college internship so you won’t come up short for money to cover next year’s tuition bill.