Whether to pay or not pay for college is a much debated subject with parents feeling strongly on both sides. There are some solid reasons for both; as a parent you have to weigh what’s best for you and your family. For those looking at getting started with your child’s college fund, here are 3 tips on how to save money for the future and possibly save money on your contributions.
1. How Much is Enough?
To get an idea of how much is appropriate, I checked out College Board to get the published costs for tuition on public and private universities. Public four-year colleges charge approximately $21,796 for out of state students annually while private colleges average around $29,056 for tuition and fees per year. Of course, these numbers vary for different universities, so please check around as your child gets closer to college age.
Having those figures and your child’s age in mind can help you get an idea of what you need to budget for college expenses. For example if you have set a goal of $100,000 available for your child when they start college and they are now 2 years old, putting aside about $200/month (assuming 8% annual return) would get you there.
2. Use 529s to Manage Your College Fund
One popular investment tool parents can use to pay for their child’s college education is a 529 (also known as a Qualified Tuition Program (QTP). This is a tax-advantaged savings plan where distributions for college expenses are not taxable if they are less than or equal to qualified education expenses.
Some states offer tax benefits for 529 contributions, making it an even better deal. Check with your state to see what you may qualify for. When I check for North Carolina, I found that single filers may be eligible for a state tax deduction up to $2,500 for their contributions and joint filers up to $5,000.
When comparing your options, look for low cost plans that offer a diverse portfolio such as Illinois Bright Start College Savings Program or Alaska’s T. Rowe Price College Savings Plan.
3. Get Your Teen Prepared for College
Of course, your child can help reduce their own college expenses without sacrificing their education.
- Attend a community college for the first two years. Some states have excellent programs that make the transfer between a community college and a solid university relatively easy.
- Use CLEP and AP courses to reduce credits needed. If your teen is already taking advanced courses, discuss signing up for AP classes that can grant them college credits while still in high school. It will shave off some time off their degree while saving you money.
- Find scholarships. Give your teen ownership over their education and have them search for scholarships and grants that they may qualify for.
Some entrepreneurial teens have used their jobs and small business to earn money to defray some of the costs of day to day student living.
Starting a College Fund?
How many of you are starting to save for your child’s college fund? How much do you think will help with college? If you have any other ideas on saving up for college, please share it in the comments.