Saving for College
In the past 20 years, the cost of college tuition has risen 183%, more than three times as much as overall inflation. College students and their families have been taking on more and more debt, and they are taking longer to pay it off. Data from the Federal Reserve’s most recent Survey of Consumer Finances bears this out. In 1998, 24% of U.S. families headed by 18- to 34-year-olds had outstanding student loans. By 2016, 24% of families headed by people in their forties and fifties did.1
It is never too soon to begin saving for your child’s education. Many parents start as soon as a child is born. Some parents begin planning before children arrive. If you plan on having a family “someday,” start planning now. If you have a child on the way, start now. If you have an infant, toddler, grade-schooler, or teenager, start now.
If your child is already in high school, you may feel it is too late to start saving for college. But think again. any pre-planning and saving you can do is better than nothing. If you are in a time crunch to save, begin thinking about ways to reduce your monthly expenses and increase your cash flow now. Then look at some ways to invest what you have saved. There are many options beyond a traditional savings account, such as CDs or money market accounts. Do some research, or better yet, enlist the assistance of a financial professional.
What about your retirement? While you may feel that putting off your retirement for a few years is an acceptable trade-off, you should not have to sacrifice your retirement savings to put your children through college. Remember that student loans are available. While you may not want your child to assume such a financial burden, you could always help with repaying the loan later. Also, by having your child be responsible for at least a portion of their college tuition or expenses, they may experience a greater understanding of (and appreciation for) the value of their education.
You need a break. A tax break, that is. Many higher education savings vehicles can provide one, such as 529 plans, Coverdell Education Savings Accounts, and certain kinds of tax-exempt bonds. However, as the number of tax-advantaged college savings vehicles have increased, so have the details, rules, and “fine print” pertaining to them. In fact, some of these tax breaks could conflict with one another. Unless you are willing to spend a great deal of time doing research, it may be wise to speak with a financial professional who can help you sort through these options.
There are also other alternatives to consider. For example, if money is tight, would your child be willing to complete those first two years of higher education at a community college, then move on to a preferred college or university later? The tuition is likely to be much less at a state community college, and you could realize additional savings if your child attends school while living at home. If your student does not wish to start college locally, it may be worthwhile to investigate the scholarships, work study programs, and off-campus jobs that may be available. The guidance office at most colleges will have job information available if you inquire.
The simple fact is the sooner you plan, the better. If you have not begun planning, start now – there is no better time to get the proverbial ball rolling. You may be surprised how a little planning now can make a big difference in the years to come.
This material was prepared by MarketingPro, Inc.
1 - philly.com/education/student-debt-has-kept-home-ownership-out-reach-young-families-fed-reports-20190118.html [1/18/19]