It Costs How Much? Saving for Your Child’s Education
College graduation. Pomp and circumstance. Crying parents. As students walk across the stage to accept their diplomas, many are taking the final steps of a journey that started the moment they were born—when their parents began planning how to fund their college education.
Saving for college is like training for a marathon. It’s a long-term goal that is bolstered by a good training plan and a coach who can help set you up for success. Research shows that a top priority for Americans is “raising their children well.” Today, that means helping them get a college education. It’s estimated that by 2020, two-thirds of jobs will require higher education or training. And, over a lifetime, an individual with a bachelor’s degree will earn approximately $1 million more than one with only a high school diploma.
Developing a savings plan as early as possible to fund your child’s higher education is smart parenting at its best. Even if you live in a state or city that is jumping on the free tuition bandwagon, “education” costs go far beyond just the cost of tuition, and you need to be prepared.
Costs are high…and rising
For the 2016-2017 academic year, the average cost for tuition, fees, room and board, and books was $24,610 at an in-state public college and $49,320 at a private college. And the price tag is only going to get steeper. College tuition rates are projected to rise 6% annually. That means babies born in 2017 may have to spend as much $500,000 if they want to attend a private college in 2035. And don’t count on a scholarship covering the tab. Statistics show that less than 1 percent of students who enroll full-time at four-year colleges receive enough money to pay the full cost of attendance.
What’s your plan?
It may feel weird to think about college while your child is still pre-pre-kindergarten, but your little one will be picking out universities before you know it. Saving for a college education is like training for a marathon—with discipline and a smart plan you can cross the finish line, having met your goals. Here are some smart ways to get off on the right foot.
Put interest to work
Thanks to the power of compounding interest, setting aside just $200 each month starting when a child is born could add up to $68,000 in college savings in 18 years.i Cultivating that savings discipline early on can spare you considerable stress years from now. (Just remember you’re going to be taxed on those earnings!)
Get the 411 on the 529
Look into a 529 savings plan. It’s a tax-advantaged way to save for future college tuition, offered by most states. Earnings in a 529 plan are not subject to federal tax and, in most cases, state tax as long as the withdrawals are used for eligible college expenses.
Consider whole life insurance
Life insurance is valuable protection for any family in the event of a parent’s death, but it also can serve as a college-funding option. When your child turns 18, you can withdraw the money or borrow against it to help pay for college. Also, life insurance policies don’t count as assets when colleges analyze your need for financial aid.
Involve the grandparents
Encourage grandma and grandpa to make an early graduation gift: regular funding of a college savings plan. If they’re in the financial position to do so, contributing just one Social Security payment a year into a 529 plan could help build your tuition war chest, and could be beneficial for their tax strategy as well.
Consult a financial professional
A financial professional can help you sort through the savings and tax implications of various college savings plans. Also, consider hiring a specialist in college financial aid who can help you understand the pluses and minuses of different aid packages—and maybe even help you find “free money” in the form of grants, awards, and scholarships.
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