Saving for college is a daunting task. Once you become a parent, it’s just about time to start saving. U.S. News estimates that “by 2030, annual public tuition will be $44,047. The total cost for a four-year degree will be more than $205,000.” In a time when inflation is running rampant, this is stark news for young parents. Not to mention, there’s a good chance you’re simultaneously saving for retirement. How can you start saving for your child’s education? How much should you plan on saving? What’s the best way to handle your child’s college fund, and how much of their costs should you cover? Find out now.
Prioritize Your Retirement
You put your child first in everything. That’s the duty of being a parent. This makes prioritizing your child’s college over your retirement seem like a no-brainer. But is that really a wise decision? Your child is going to be presented with assistive options such as scholarships, grants, work-study programs, and so forth. You, are not. When you’re past the point of working age, do you want your financial struggles to fall back on your child? Certainly not. Prioritize your own retirement, and your child’s education will find a way.
Determine How Much You’ll Need to Save
College is increasingly expensive, there’s no way around that. But everyone’s circumstances are different. Depending on your child’s goals, state of residence, the degree they’re planning to obtain, and more, the costs will vary greatly. Make use of online tools such as this College Cost Calculator to determine how much you should be saving. Keep in mind for the average family it’s not standard for parents to cover 100% of college costs. A study conducted by Sallie Mae revealed that parents covered about 45% of their child’s expenses overall in 2020-2021. The rest being covered by scholarships, grants, student borrowing, and family/friend contributions.
Find Ways to Lower Costs Now
Delving into how expensive college is can feel discouraging. But you’re only allowing yourself more time to plan. By keeping college-saving in the forefront of your mind now, you can help your child to take advantage of college course opportunities in high school, apply for scholarships, and more. The same study by Sallie Mae mentioned earlier found that scholarships and grants covered about 25% of the costs on average. By focusing on opportunities like these in advance, you could end up with scholarships covering more than a quarter of the costs.
Start a 529 College Savings Plan
Do so sooner rather than later. According to Investopedia, “A 529 plan is a tax-advantaged savings plan designed to help pay for education.” A 529 plan can be used to pay for college, apprenticeships, K-12, and student loan repayments. They’re sponsored by your state, a state agency, or an educational institution. A 529 is the most popular option for college saving, and for good reason. There are two different types of 529 plans: an investment savings account or a prepaid tuition plan. The right one for you depends on your state, your child’s age, your household income, and more. Study the pros and cons of each carefully to decide which one is right for you.
Speak With a Financial Advisor
As was stated, saving for college is a daunting task. Especially since you’re planning for a growing individual with changing thoughts, interests, and opinions. It’s hard for a student to know what they want, where they want to go, and what type of career they want to pursue. Not to mention your financial situation is naturally going to fluctuate over the next 18 years as well. With ever-changing circumstances and goals, it’s best to work with a financial advisor to keep your plan running smoothly. Contact Chris Haro CPA today for a clear financial plan and expert saving advice.