The cost of college is rising. Tuition and fees for a four-year degree at a public, in-state university have topped $34,000 on average. Student loans are skyrocketing, too, with the average borrower graduating with nearly $30,000 in debt.
If you find yourself wondering how to start saving for your kid’s college education, don’t panic. You can help cover costs and ease the burden of student loans by following these tips on the best ways to help save for college.
Do Set a Goal
Use a college savings calculator to determine how much money you’ll need. This will be based on your child’s age and high school graduation date. The calculation will help you set goals for monthly savings. A Sallie Mae survey found that 86 percent of parents who set college savings goals felt confident they’d reach them.
Do Understand Your College Savings Options
Saving for your kid’s college education is a lot easier if you use the right savings tools. 529 plans can be an effective way to save for higher education, but tax-advantaged accounts aren’t the only options for earning an A+ in college savings.
Coverdell Education Savings accounts (ESAs) also have tax-free status and can be used to cover college costs, such as tuition, books and supplies. Although there are no tax benefits, contributing to a generic savings account or purchasing savings bonds for college is better than not saving at all.
Do Encourage Your Kid to Apply for Scholarships and Grants
There are tons of options to help offset the cost of college. Schools, churches, local nonprofit groups, labor unions and social organizations are all great sources of scholarships and grants. The U.S. Department of Labor offers a scholarship search tool. Also, a college’s financial aid office can point you to resources that can help you save for college.
Don’t Wait too Long to Start Saving for College
While it’s never too late to start saving for your kid’s college education, the earlier you start, the more time you’ll have for your money to grow. If you save $25 per week in an account that earns 6 percent interest from birth until your child is nine, you’ll have $26,750 at the end of 18 years— even if you stop saving.
If you wait until your child’s ninth birthday to start saving, that same $25 per week at 6 percent interest will add up to just $15,800 by college. The power of compound interest means that saving earlier is better than waiting.
Don’t Overlook Financial Aid
Students may qualify for billions of dollars in federal financial aid via grants, work-study programs and loans. Check the U.S. Department of Education’s website to learn more about financial aid eligibility and determine how much your child could receive for college.
Don’t Sacrifice Your Retirement Savings
It would be a mistake to redirect 401(k) or IRA contributions to college savings plans. Students can get loans to attend college, but there are no loans to cover the costs of retirement. For this reason, you should prioritize retirement savings. If you have extra funds, contribute them to a college savings account.
Start Saving for College
It’s never too early to start planning for college, and your Farm Bureau agent or advisor can help. The more prepared you are to cover the costs of higher education, the less stressful it’ll be when you get the first bill.