Be Prepared for National College Decision Day
Every spring, high school seniors around the country begin to hold their breath opening the mail. It’s the time of year when colleges start selecting students for the upcoming school year, meaning every letter could come with the joy of acceptance or the sting of rejection. May 1 is National College Decision Day, the date for high school seniors to make final college decisions.
College currently costs anywhere from $28,000 per year for a public college to $59,000 per year for a private college. If your kids are younger, college will be even more expensive by the time they’re ready for school. Luckily, you’ve got some time to save. Here are some college funding options.
Saving for Kids
One of the best moves you can make is to turn your kid into a saver early on. Start a savings account when they’re born. Deposit any money your kids receive for birthdays and holidays while they’re young to start building up the account. Next, encourage them to start saving themselves to reinforce good financial planning while they’re young. If you can spare it, offer to match partially any money they save to motivate them even more.
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Many banks will provide a free piggy bank when you open a child’s account, so you can get them in the habit of saving at home as well. When you have extra change in your pocket, add it to the piggy bank. You’ll be surprised how quickly it adds up. When the pig starts to get full, deposit into their savings account.
Start a College Savings Plan
Every state offers 529 plans, tax-advantaged savings plans that lets you set aside money for college. As long as you use the money for education expenses (tuition, books, room and board), it grows tax-free. It’s like a Roth IRA, but for college, rather than retirement. The sooner you start saving, the more time the money has to grow.
If you have a modified adjusted gross income of less than $110,000 ($220,000 on joint returns), a Coverdell Education Savings Account might be right for you. It’s similar to a 529, but it can also be used for some education expenses from kindergarten through high school.
The Uniform Transfer to Minors ACT (UTMA) allows adults to contribute funds to a UTMA account for people under 21. The money can be used for educational purposes, but it’s not required.
Use Savings Bonds and CDs
Savings bonds are one of the safest investments, though when interest rates are low (as they are currently), the earning potential can be limited. The big advantages are that the money isn’t as easily accessible as a savings account, and savings bonds earn interest for 30 years. So you can have bonds that mature later for further education expenses like graduate school. Savings bonds don’t have to be used for education, so if your child doesn’t go to college, they can be used for something else.
A certificate of deposit (CD) invests your money for a set period of time with a fixed interest rate. CDs generally have a better interest rate than a standard savings account, since you’re investing the money for a one to three-year period. However, when interest rates are low, the returns aren’t as good. There are also penalties to your earnings if you need to access the money before the CD reaches maturity. Like savings bonds, there’s no requirement that CDs be used for education purposes.
Encourage Them to Earn Money
Once your child is a teenager, it’s common for them to get a part-time job. This is a good time to stress the importance of saving up what they earn. With just a few years left before college, it could serve as good motivation to save. Summer jobs are also one of the best ways to save for college.
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Keep in mind, working to save for college can start even earlier. Encourage them to save up money from doing chores. Seasonal jobs like mowing lawns, raking leaves and shoveling driveways can present extra earning opportunities. Let them use some of the money for fun activities, but the overall goal should remain saving for their own education. It will help develop a sense of responsibility that will hopefully pay off with a lifetime of financial responsibility.
Focus on Scholarships
Many parents dream of full-ride academic or athletic scholarships, but they’re difficult to count on. Luckily, there are numerous scholarship opportunities available (including some unusual ones). There are websites that make it easy to search for scholarships available by major, college and other categories.
You should also check with your employer, they may have opportunities for children of employees, and there may be other options available in your community. You may not find something that covers all your child’s expenses, but chipping away at the larger cost is one of the best ways to save money for college.
Go for a Grant
Federal Pell Grants are money that you never have to repay, so if your child qualifies it’s a handy way to shrink their college bill. Pell Grants are awarded based on need, up to $5,815 per year. Every student should fill out a FAFSA (Free Application for Financial Student Aid) to find out what other financial aid they might qualify for.
It’s never too early to start saving for your child’s education. You have 18 years to build up a cushion to get them through some of the most important (and expensive) years of their life. Get ready for National College Decision Day by learning more about the best ways to save for college on our College Funding page. We have a variety of options that can put you at ease and make you feel more secure about your child’s future.