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Get a jumpstart on saving for college

Get a jumpstart on saving for college

March 05, 2024

Raising children is not cheap. Plus, even after your child is ready to go off on their own, there is the cost of college to consider. The average public four-year in-state tuition sits at an estimated $24,030 per year. And education costs only increase for out-of-state or private universities.

 Whether your teenager is nearing their college years, or you’re planning ahead for your younger children, here are some tips to get you saving for college today.

Consider a tax-advantaged savings plan

One benefit of saving directly for education is that you can do so in a tax-advantaged account. Savings plans like a 529 allow you to grow your savings tax-free and withdraw funds for education-related expenses without paying federal income tax. Many states also allow 529 plans to avoid state income taxes as well. Keep in mind that your investment options may be limited and not all 529 plans are the same, so make sure to understand the pros and cons of these tax-advantaged accounts before investing.

Look into prepaid tuition plans

It seems like the cost of college only continues to grow at an astronomical rate. A prepaid tuition plan is a type of tax-advantaged plan that allows you to lock-in the cost of college today to hedge against rising education costs. These plans often have strict limitations, may only be available in certain states, at certain universities, and may not cover room and board costs. Yet, they can still be a good way to keep education costs down and potentially help avoid student loans in the future.

Know where to get help

Financial aid is common for many college students. In fact, it’s estimated that 85%*  of all university students receive some form of aid. Consider the various government and private aid options that you can utilize to help cover the cost of college that you’re unable to afford.

 

Financial aid can come in many different forms, such as:

 

  • Work-study: Provides tuition discounts for students who get a campus job
  • Grants: Aid for eligible students that doesn’t have to be repaid
  • Scholarships: Merit-based awards
  • Loans: Must be paid back based on terms and conditions

 

Utilize the power of compounding

When it comes to saving, time can be your friend. That’s because with the power of compounding, your savings can grow even faster than you may have expected. This can help you reach your college savings target sooner. Compounding is when you earn interest on both your savings and on your already-earned interest.

 

For example, if you start saving $100 per month when your child is born, you will have 17 years of compounding which will help you increase your savings. Assuming a 5% annual rate of return, at the end of those 17 years, you’ll have over $32,000 in savings to use toward college.

Start contributing today

It’s often said that education is one of the best investments you can make in life. So, by contributing to your child’s education today, you are already investing in their future. Plus, the sooner you start putting money away, the sooner you will reach your college saving goals. If you can start when your children are young, even a few dollars each month toward college savings will go a long way in the end.

 

Ready to build a plan that works for your specific situation? Reach out to us directly to schedule a meeting or ask a question.

 

 

 

 



 

 

 

Source: https://www.bankrate.com/loans/student-loans/fafsa-statistics/#stats