September is National College Savings Month, and when you think about how much college tuition costs, it is no wonder that many scramble, trying to figure out how to pay. And, while a college degree is not always necessary to find success in this world, many people decide that university is the path they wish to take. If college is in your children’s future, it is a good idea to start figuring out ways to save up. After all, it is in the best interests of everyone involved to avoid student loan debt as much as possible.
The cost of college is continuing to go up every year. According to some numbers from the College Board, if you or your child plans on going to an in-state public college, you could be looking at an annual fee of over $25,000. If it’s a private college, the price tag jumps to over $50,000. Ouch!
If your child is getting close to college age, you might be sweating at the thought of having to make those payments. Hopefully, you still have a lot of time to prepare, but if not, don’t worry. There are some ways you can jump start your savings and make the most of your money.
Tips to Help You Save for College
If you aren’t yet saving for college, now would be a good time to start. The earlier you get started, the better it’s going to be. Even if you think it’s too late, it’s not.
Here are 3 strategies that can help you save for college:
1. Contribute to a College Savings Plan
One of the best things you can do is to contribute to a college savings plan. Coverdell accounts and 529 plans both represent opportunities for you to grow your money faster, since these accounts are places for investments (many people choose some type of fund for their college savings accounts). These accounts come with tax advantages as well: You do not have to pay federal taxes on the earnings or the withdrawals — provided the money is used for qualified education expenses.
You can contribute regularly to a college savings plan, and have your kids contribute for their own benefit as well. If you start early enough, you will be able to take advantage of a longer period of time for the money to grow, with compound interest working on your behalf. Last year, I opened a 529 plan for my son, and have automatic contributions made. It’s not a great deal of money each month (I’m concentrating more on retirement savings), but it should be helpful later. And my son can begin contributing some of his own money, too.
529 plans are hands-down the most popular way to save for college tuition. There are two types of 529 plans, an investment account or a prepaid tuition plan.
The money in 529 savings investment account is invested (big surprise there). The money is put in mutual funds or ETFs and operate similar to any other investment account. The money grows tax-free, like a Roth IRA.
It is important to remember, though, that these types of accounts come with risks; since they hold investments, it is possible to lose money in them — especially over the short term.
The prepaid tuition 529 plan is very different. This is a unique way of paying for college, and unfortunately, some educational institutions are phasing them out.
The idea is simple. College is continuing to get more expensive every year (raising about 5% every school year), so your $30,000 isn’t going to pay for as much college as it will in 6 years when your child goes to school. This is a way you can “lock in” those tuition costs and use the money in the account to pay for college in the future. Even if the costs go up, you’ll pay the same.
2. Work Toward Scholarships
Growing up, my parents made it clear that I was responsible for my college tuition. They would pay my housing expenses, and pay for a meal plan, but I had to cover my tuition. As a result, I did what I needed to do in high school to get a full tuition scholarship.
Working toward scholarships can be a good way to save on college costs. Don’t forget that there are scholarships beyond straight academic awards. Check into foundations, local organizations and on the web for scholarships that you might be able to apply for. It’s worth your while to apply for whatever is out there.
Scholarships are pretty much free money you get to put towards college. If you’re a student about to head off to college, it’s never too early to start filling out scholarships. If you’re a parent, it’s never too early to start motivating your kids towards the free money.
There are thousands and thousands of scholarships out there. Some of them are smaller, $500 or less, while others are more sizable, and could be for thousands of dollars. There are opportunities for just about anything. Everything from academic achievement to simply being left-handed.
Another place you should look for scholarships is with local organizations and business in your area. A lot of companies offer money for local students to go to college. In most cases, the application process is simple enough.
The main advantage of these local scholarships is less competition. Fewer students means a higher chance for you to get the money. Sure, they might be smaller amounts, but those small amounts add up.
Because there are so many opportunities out there, you can easily get overwhelmed sifting through all of the scholarship applications. Thankfully, there are plenty of tools and resources you can use.
The first one should be the school guidance counselor, they have access to your records and can help connect you with the scholarships you qualify for.
The next one is using a free tool like the BigFuture feature on Collegeboard.org. This tool is simple, you just have to answer some questions about yourself and then you can get a full list of possible scholarships for you. This can save you hours and hours of going through results just to find a bunch of scholarships you don’t qualify for.
An additional tip I would suggest for scholarships is to put the due dates on a calendar. If you’re applying for a bunch of different scholarships, all of the dates can be jumbled. Get out a calendar and put the due downs, you don’t want to miss out on a chance for free money.
3. Regular Savings Programs
Don’t forget that there are plenty of regular savings programs as well. You can sign up for SmartyPig or some other high yield savings account. There are programs like Upromise that can help you save up for college.
We’ve got a Upromise account in my son’s name, and every time we shop online or buy airline tickets, we go through the Upromise site. We also registered our debit card and got a Upromise credit card. We use the card for specific purchases, and pay it off every month. No, our earnings from Upromise won’t pay the college tuition bill. But, by the time my son does go to college, the earnings will probably be enough to pay for his books.
One of the main advantages of using a regular savings program to save for college is how easy they are. You’ve opened a bank account before, it probably didn’t take too long. Why not open another account and dedicated to saving for college?
Because you aren’t going to be touching the money in the account for many, many years (hopefully), you won’t need an account which gives you access to the money. Instead, you can search for an account which gives you high returns.
Bottom line: If you plan to send your children college, you really do have to begin planning ahead. College is such a major life expense that, like retirement or purchasing a home, you really do need to create a plan, and begin working to save up for college now.