Here are five strategies to utilize when trying to meet the cost of higher education.
1. Encourage Your Child to Save Through High School
Even if you are financially able to cover most of your student’s higher education costs, establishing the precedent that your student should be working towards saving for college while in high school, will become a priceless lesson. Part time jobs can be grueling, especially during the busy period of high school, but learning to multitask while in school and having a job will equip your student not only with personal funds for college – but priceless skills to function in the real world. Even if your child can only handle a job during the summer, earning funds for higher education will give them more responsibility in controlling their future.
2. 529 Plan
When thinking of strategies to start saving for your child’s higher education, one of the first things that should come to mind is a 529 plan. The plan will either be sponsored by the government or an educational institution depending on what kind of 529 plan you choose. There are two types of plans that you should research, a prepaid plan or a college savings plan, before deciding what would be the best mode to save.
Prepaid Tuition Plan
With the prepaid tuition plan you buy tuition units, or credits, at a specific college institution at a locked cost. So, even if inflation increases the cost of tuition, you’ll have already made the payment for the classes ahead of time, which protects you from any increase in price. There are two downsides to this plan - it will only apply to the specific institution that you bought the credits from and is only available to colleges within the state that you are a resident. If your student decides to go somewhere out of state it would be money wasted. When considering this plan, insure that the institution you are purchasing from is definitely where your child will go.
College Savings Plan
The college savings plan is a much more flexible plan, because it can be applied to any college and any aspect of college education costs, including housing – unlike most prepaid tuition plans. This plan also depends on investments for fueling funds, “the account holder may typically choose among several investment options for his or her contributions, which the college savings plan invests on behalf of the account holder. Investment options often include stock mutual funds, bond mutual funds, and money market funds” [1]. One downside of this plan is that it has no lock on college costs, so it will be affected by inflation. But unlike the prepaid tuition plan, there is no enrollment period so it will be open to contribute to all year.
3. Scholarships
This may be an overstated option, but it is a necessity to paying for a college education. You and your child, should heavily research qualified scholarships and their application deadlines. Some of the common ones will be scholarships for children of alumni, scholarships for a high ACT/SAT score, and athletic scholarships. However, there are many more that go beyond this range. Do thorough research and apply to every single scholarship that is a realistic possibility. If there is a left-handed student scholarship, then there is definitely a scholarship out there for everyone.
4. FAFSA
Applying for FAFSA is one of the most important things to do once accepted into a college. The first thing that might pop into your mind when thinking of FAFSA is: “That will only get me Federal loans!” Applying for federal aid will also qualify you to receive grants, which is money that does NOT need to be paid back. The option of a work study program is also extended to those that fill out a FAFSA – this will not only be great resume material, but it is also a debt-free way to pay for college.
5. Coverdell Education Savings Account
Similar to a Roth IRA, but intended for education costs, the Coverdell ESA is an acceptable mode of saving for college. This account allows parents (or grandparents) to create an account in the child’s name and deposit up to a maximum of $2,000 of post-tax income into the account. When the funds are withdrawn from the account they will be tax-exempt. According to NerdWallet, if for some reason the child does not use all (or any of the funds) the money will not be given to the child, nor will it be returned to the depositor [2]. This is a better alternative to using a Roth IRA to pay for college costs, but it does carry some risk of wasting money if that child doesn’t need to use the funds.
If you, or your child, are planning to go to college have some of these saving strategies ready to go. Given a little attention, and a lot of time, you can greatly reduce the future costs of college.
Sources:
[1] An Introduction to 529 plans, U.S. Securities and Exchange Commission
[2] College Savings Funds and 529 Plans – Why and Which?, NerdWallet
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