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13 Smart Ways to Save for Your Child’s College Education

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College Education

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Planning for your child’s college education can seem daunting with rising tuition costs, but it doesn’t have to be a financial nightmare. Getting a jump start on savings can ease the burden considerably, and it’s easier than you think with a few smart strategies in place. Let’s explore 13 savvy ways to start stashing that college cash today, making sure you’re prepared when the cap and gown day arrives!

1. Start a 529 College Savings Plan

Start a 529 College Savings Plan

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A 529 plan is one of the most popular ways to save for college. These plans offer tax advantages and the flexibility to use funds for a variety of educational expenses. You can start with a small amount and add to it over time. Relatives can also contribute, making it a great group effort. Plus, many states offer tax benefits for contributions to their own 529 plans, sweetening the deal.

2. Use a Roth IRA

Use a Roth IRA

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Though traditionally used for retirement savings, a Roth IRA can also be a fantastic way to save for college. Contributions are made with after-tax dollars, and you can withdraw contributions (not earnings) tax-free and penalty-free for qualified educational expenses. It’s a versatile option, especially if your child decides not to go to college, as you can still use the funds for retirement. Just remember, there are contribution limits, so plan accordingly.

3. Tap into Education Savings Accounts (ESAs)

Tap into Education Savings Accounts

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Education Savings Accounts, particularly the Coverdell ESA, allow for tax-free growth of investments and tax-free withdrawals when the funds are used for educational expenses. You can contribute up to $2,000 per child each year, but be aware of income restrictions that may apply. ESAs can cover expenses from kindergarten through college, making them a flexible option for long-term education planning.

4. Set Up Automatic Transfers

Set Up Automatic Transfers

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Making saving effortless is key. Set up automatic transfers from your checking to your savings account right after payday. Even small amounts can add up over time, and you’ll hardly notice the money is gone. This “set it and forget it” strategy reduces the temptation to spend what you might otherwise save. Over the years, these automatic savings can form a substantial nest egg.

5. Get a High-Yield Savings Account

Get a High-Yield Savings Account

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For the money you’re saving, why not make it work a little harder? High-yield savings accounts offer better interest rates than regular accounts, meaning your money grows faster. Shop around for the best rates and no-fee options. These accounts are typically very safe, making them a good spot to park your college savings funds. Just make sure you have easy access to the money when the time comes.

6. Redeem Credit Card Rewards

Redeem Credit Card Rewards

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If you’re a savvy spender, look for credit cards that offer cash back or rewards that can be put into a college savings account. Some cards even offer specific education-related rewards. Make sure you pay off your balance each month to avoid interest charges that could negate your rewards. This strategy is a way to make everyday purchases contribute to your savings goals. Just stay disciplined with your spending!

7. Encourage Gifts to College Fund

Encourage Gifts to College Fund

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Instead of traditional gifts, encourage family members to contribute to your child’s college fund during holidays and birthdays. Many 529 plans offer gifting platforms where relatives can directly deposit money. It’s a meaningful way to help build your child’s future education fund. This not only boosts the savings but also helps family members feel they are giving a lasting gift. Plus, it teaches your child about the value of saving over spending.

8. Invest in Mutual Funds or Bonds

Invest in Mutual Funds or Bonds

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For long-term savings, consider more aggressive investments like mutual funds or bonds. While these come with more risk than a savings account, they also offer the potential for greater returns. Start early to take advantage of compounding interest over time. Be sure to consult with a financial advisor to match your investment choices with your risk tolerance and time horizon. It’s all about growing your savings strategically.

9. Save Tax Refunds and Bonuses

Save Tax Refunds and Bonuses

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Whenever you receive a tax refund or a bonus at work, resist the temptation to splurge. Instead, channel some or all of this extra money into your child’s college savings. This “found money” can significantly boost your savings without affecting your regular budget. It’s an easy way to get ahead in your savings plan without feeling the pinch. Every little bit adds to the pot!

10. Cut Unnecessary Expenses

Cut Unnecessary Expenses

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Take a good look at your monthly expenses and identify where you can cut back. Maybe it’s that gym membership you rarely use or the gourmet coffee you buy every morning. Redirecting even a small portion of your discretionary spending into your child’s college fund can make a difference. This practice not only helps in saving but also instills good financial habits at home. Plus, it’s empowering to know you’re prioritizing your child’s future.

11. Utilize Matching Employer Contributions

Utilize Matching Employer Contributions

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Some employers offer matching contributions to 529 plans or other educational savings accounts as part of their benefits package. Check with your HR department to see if your company provides this perk. This could double the money going into the account, accelerating your savings efforts dramatically. Don’t leave free money on the table, take full advantage of this if it’s available.

12. Hold a Yard Sale

Hold a Yard Sale

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Turn your clutter into cash by holding a yard sale. Not only does this clear out space in your home, but it also provides a fun opportunity to involve your child in saving for college. Explain the purpose of the sale and let them help organize and run it. All proceeds can go directly into the college fund. It’s a proactive way to boost savings and teach your child about earning and saving.

13. Apply for Scholarships Early

Apply for Scholarships Early

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Start scouting for scholarships as early as possible. There are scholarships available even for elementary and middle school students, not just high schoolers. Every dollar won is a dollar less you need to save. Keep track of deadlines and requirements, and help your child apply. This proactive approach can reduce the financial burden significantly as college nears.

Cultivate a Culture of Saving

Cultivate a Culture of Saving

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Saving for your child’s college education is a marathon, not a sprint. By implementing these smart strategies, you can build a substantial fund that will help support your child’s academic journey. Remember, the key is consistency and starting as early as possible. Every step you take today is an investment in your child’s bright future.

4 Factors to Weigh When Choosing a College

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college search 4 factors choose collegeCollege students in America are facing a financial crisis.

According to the Center for American Progress, more than 13 percent of students who started loan repayment in 2009 wound up in default by September 2012. Another 26 percent of those borrowers were delinquent.

Ouch.

Many experts argue that the causes for these epidemic rates are systemic: College is getting more expensive, forcing students to borrow more, but the rising cost of college degrees is not being met by increasing value of those educations.

Many students who began loan repayment in 2009 entered into an economy that struggled to create new jobs for the youngest generation, resulting in an employment crunch where college education was not rewarded with the employment they merited. With horror stories running rampant, today’s prospective college student is increasingly weighing the cost of college against its supposed value. If you’re facing a similar situation, here are some financial considerations to keep in mind:

Consider the Total Costs

For many students, college is expensive. But there are other costs associated with college that are worth considering when weighing the total cost. For example, if you go to a school where you need to own a car, you’ll have to pay for the up-front cost of the vehicle plus maintenance, gas and insurance while you’re in school. That could easily up the price of college by thousands of dollars per year, depending on the vehicle.

And if you plan to live off-campus, the local cost-of-living might also factor in. Consider housing prices, food budgeting, and other situational costs that might affect how you consider the overall cost of attending one college over another.

How Does Financial Aid Vary?

Federal financial aid is typically awarded according to your family’s presumed ability to pay for college. This affects the federal grants you qualify for as well as the types of student loans you are eligible to borrow. Additionally, individual schools also have financial aid packages that can feature an array of scholarships and grants. Depending on the school you plan to attend, strong students can sometimes lobby for better financial aid packages.

Because your financial aid is likely to be different at every school, you need to get hard numbers from each institution, and use this aid to reassess your college options. One report by HCM Strategists identified financial aid packages and emerging aid channels as vital tools to make college more affordable. These tools help avoid the worsening student-debt crisis, so don’t ignore how these alternatives might create much-needed economic relief.

You can even receive financial aid if you enroll in an online institution, depending on your overall financial need. Contact your school’s admissions advisor for more information on state loans, personal loans, veterans’ benefits, and tuition reimbursement through your employer. The tuition reimbursement program is a great option for employers who want to invest in their employees and keep them around long-term.

Will You Get Your Money’s Worth?

When it comes to saving money in order to get more bang for your buck, students have a number of options available to them. They may choose to first attend a community college and complete general education requirements while the costs are low. It’s also helpful to keep online college courses in mind, particularly if you’re looking to maintain flexibility while juggling school and a job. Browse a directory of online colleges and programs to educate yourself on all of the options available to you. Scourge the web for all available online college resources you can find, and start comparing and contrasting each resource.

For Some, It May Depend on Your Major

A college education can offer job prospects and income opportunities that vary widely across different majors. According to a report from Georgetown University’s Center on Education and the Workforce, unemployment rates tend to be much higher for some courses of study than for others, as Forbes highlights.

Architecture graduates have the highest current unemployment rate, largely because the stagnant economy has deflated demand for new buildings. Not far behind are Arts, Humanities and Social Sciences, all of which have unemployment rates of 8.9 percent or greater.

Given those numbers, students might find it particularly risky to invest in an expensive education that offers poor income prospects and a high risk of unemployment. Degrees in business and other stable professions, on the other hand, are more likely to deliver a strong return, making it more practical to spend for a more expensive education.

5 Steps to a Successful College Plan

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My personal bar for my children’s education is modest. I hope they’re happy and successful enough that they won’t need to live at home. That’s it. Sure, I’d love for them to have wealth beyond measure (or at least enough to support ‘ole dad in his golden years), but that’s icing on the cake.

I know for certain they’ll need a solid education to have a leg up when searching for a job. Paying for college isn’t a gift to my kids…it’s a gift to me and my own retirement plan….without children begging me for cash.

If you haven’t thought about how you’ll plan for college, now is a great time.

Here are the five steps you’ll need to navigate to create a successful college attack:

What’s Your Target

If junior is only two years old, it’s impossible to discern whether that giggle means she wants to attend Harvard or the local community college. But because a college degree is so expensive, parents need to decide what they can afford early on to set a reasonable target.

Decide these three points as soon as possible:

– What type of school would you like to afford?

– How much college should your child pay for on their own?

– What are you going to do to help junior find money to afford their portion (assuming you’ll make junior foot some of the bill)

Once you’ve determined the type of school you’d like to afford, now we know what we’re aiming for.

Price Your School

Here’s the single most ugly step in planning for education:  peeking at the price tag.

Unfortunately, it’s impossible to create a successful college plan without knowing what it’ll cost. Visit college websites to determine how expensive your little pride-and-joy’s educational journey is going to be. As I just mentioned, this eye-popping experience may cause you to rethink point #1 above. In my experience helping clients plan, we’d set some lofty college goals, knowing that at the very least, if they miss the top rung, they’d still be able to afford the next lower rung.

According to FinAid.org, it’s a good idea to plan on education costs rising at double the inflation rate. This means that a number around eight percent inflation would work as a conservative estimate.

What does this mean? When you begin putting money aside, you aren’t going to need to save today’s costs of an education. Au contraire, you’re going to need to meet the cost in future dollars. That means that you’ll need to use a calculator add eight percent per year to today’s cost to find out the true goal. Armed with this number, you’ll then backtrack to today to find out how much you’ll need to save per month to reach your future education cost goal. Now you have benchmarks and a target. Game on!

Understand Financial Aid Programs

Many people understand that saving into an IRA plan can damage your retirement plan if you’re going to leave work at age 35. These same people fail to realize that certain ways of saving can severely impact the amount of money you’ll need to save for college for your children.  Most students don’t qualify for scholarships so families use a student loan application for financial help with some or all of college’s costs. Using an online service can help you compare lenders to find the best rate depending on how much you may require.

Simply put, different than retirement–which you want to enjoy–college is an experience to survive. If you can succeed in finding a prestigious institution that will cost you nothing to attend, that’s fantastic. For most, the goal is “maximum education for minimum price.”

To receive the minimum price, you must pay attention to how you save money. Colleges will only subsidize your education if you qualify in one of three areas:

  • academic scholarships.
  • athletic scholarships.
  • need-based aid.

If your child is young enough, you can help junior secure good grades to possibly qualify for an academic scholarship. Qualifying is half of the battle. The other half is actually finding and applying for these opportunities. While colleges try and lure the best and brightest they can find, your child in one of millions who’ll attend college some day. Much like a car dealership has to advertise a good deal, you’ll need to advertise your student.

That sounds awful. I’d just rather focus on grades.

Great. I promise you that someone who markets their grades will find many, many opportunities that the person who just focuses on grades alone will find. Hunt. Search. Show off your honor roll student. Colleges will pay you back by showing you opportunities you may not have discovered if left on your own.

Although every parent would like to think that their gifted athlete is headed for an NCAA Division I scholarship, this isn’t normally the case. There are far more gifted athletes than there are programs available. Even if you do have a child with a natural ability to run, jump or throw, you’ll need to still shop your athlete to schools to make sure coaches know you’re interested.

Scholarships often go to students who successfully market themselves rather than the most qualified individual.

That leaves need-based aid programs. A dollar saved depends on how it’s saved. If it’s saved in the students name, it counts differently than if it’s saved in a parent’s name. Also, money in a retirement plan is counted differently than cash in the bank. How you save is vitally important when a college is counting up how much you have. Do yourself a favor and learn how schools count before filling out aid forms. Colleges use a formula called “expected family contribution” to determine how much you’ll be able to afford. Learn this formula. In fact, if possible, find out before you begin saving for college so you’ll have funds in the most appropriate spots to qualify for the maximum amount of aid possible.

Decide How You’ll Save

Popular savings vehicles such as stocks, mutual funds, 529 plans, pre-paid plans, Roth IRA investments and savings bonds all have distinct advantages and disadvantages. The type of fund you use will play a huge role in your savings plan.

Begin the investment selection process with your time frame. For short-term savings, 529 plan (low-risk options) and savings bonds offer safety that others cannot.  Long term savers may choose more aggressive options, such as stock-based mutual funds, exchange traded funds or real estate investments.

Here’s the big key: sheltering your money is every bit as important as picking the right investment. Because 529 plans, pre-paid options, a custodial account and IRAs will affect a family’s expected family contribution for college, it’s important to understand the affects of these shelters on possible aid packages once junior reaches college age. Also, many plans have penalties for early withdrawals or withdrawals for anything outside of qualified college expenses.

Writer Stephen Covey talks about picking up a stick in his book 7 Habits of Highly Effective People. He says that when you pick up one end of a stick, you also pick up the other end. How does this apply to college savings? It’s simple: it’s every bit as important to know how you’ll withdraw money from a plan when you open it as it is to understand funding methods and available investment options.

Apply for Grants, Scholarships and Aid

Finally, you’ll want to focus on a few opportunities where you know you stand a chance of possibly finding funds to help pay college costs. Generally, people don’t just throw money at college programs. There is often something in it for the organization distributing money. By understanding what they want from the student, it’ll be much easier to secure help than by simply thinking that someone is just going to gift your son or daughter a college education.

Schools may want work-study, banks want interest on loans, companies may want a contract for your student’s work. Create a list of grants, scholarships and aid and learn the process of applying for each of these important programs. Many use a form called the FAFSA (Free Application for Federal Student Aid). Read this form ahead of time to learn what questions will be asked.

Some universities offer financial assistance, depending on the student’s need and his or her academic potential. These students will have to fill out the FAFSA and then set up an appointment with the school’s admissions adviser to discuss potential solutions. Setting up this appointment is also a great idea to find out about scholarships and employer tuition reimbursement programs. If you are already working, speaking with your employer about helping you out with your tuition costs can’t hurt and could benefit both parties in the future if you earn your degree and stay at your current job.

Hopefully, this will help distill your successful college plan process into bite-sized morsels to attack. Clearly, there are nuances in each of these five steps. However, by breaking them down into these pieces, you’ll find that what might have seemed like a Herculean task is really a manageable process that you can navigate if you have a little patience and start right now!

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Why Junior’s Education Might Be Cheaper Than You Thought

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My son went to a private school for a year. If we hadn’t moved from the region, I think I may have had to start selling plasma on the side to afford tuition.

It’s that expensive.

But you can’t deny the value of a good education. In fact, Dr. Jeffrey Sachs presents a horrifying case in his new book, The Price of Civilization. I don’t want to devolve this blog into the politics of this book. This blog, which refuses to stand for anything, doesn’t endorse any politics associated with the piece (enough disclaimers for ya’?).

My only point:  the statistics in the tome don’t lie: the key to life isn’t in getting an advanced degree, but there’s a more-than-high probability that your quality of life is seriously screwed if you don’t have one.

You’re still going to have to work hard and secure a job, two factors that ain’t gonna come easy, even with the degree in-hand.

So, you being the amazing parent that you are, decide to begin saving for junior’s education.

And that’s where the fun begins.

Most people start from square 10, rather than square 1.  That’s because the silly marketing departments for investment companies encourage you to start from the middle, with their emphasis on whether you should use a 529 plan or a pre-paid tuition option. How about mutual funds?  Coverdell?  Decide what you want to save into already?

Remember the moldy financial advice to look at the map before starting your car?  It’s advice that’s been rolled out often because it’s true.  Start with your goal.

Of course, it’s impossible to ask a two year old where she wants to attend college.  I take that back. You can ask, but the answer won’t be very accurate. So, as a financial planner, I had to get creative. We had to start with affordability.  My question became “what can a parent afford?’

Good News on the Affordable Front

You can probably afford more education than you believe. I know that scholarship opportunities are overrated. It’s actually the calculation most financial planners use that are inaccurate.

Let’s visit a reliable website and view the college costs.  We’ll focus on Kentucky University. Mostly because I’ve never been accused of being a fan of this school for no greater reason than I always want their basketball team to lose.  I know. I’m petty.  Let’s move on.

We’ll begin by finding reliable third-party information:  Peterson’s College Search. At thefreefinancialadvisor, we like to use websites which don’t have an axe to grind. Petersons is a great site because they only want to be your go-to place for education statistics and information.  (and no, thank you, I’m not being paid by Petersons, either.)

So, let’s start here:  http://www.petersons.com/college-search/university-of-kentucky-cost-and-financial-aid-000_10001934_10003.aspx

We’ll pretend you’re in-state for this exercise.  See the bottom line?  No?  You’re right.  We’re going to have to perform some math.

First, there’s tuition at $7,656.  Then we skip down to fees, which are $954 for full-time students.  Finally, gaze a paragraph down to room and board.  That’s an additional $9,439.

The total cost of education, per year, is going to be $7656 + $954 + 9,439 = $ 18,049. 

For this exercise, we’ll assume that you plan to pay all of these costs without scholarship aid. At least for planning purposes with your two year old, you shouldn’t count on aid. What happens if you plan on aid and don’t receive a package?

At this point you should be asking yourself, what about this number is affordable? 

The good news is that the $9,439 number for room in board is correct. However, you may discount a portion of this price from your family budget.

In many financial planning meetings, the advisor will neglect to back down your costs associated with junior living at home. If your little-pride-and-joy moves away to college, you’ll no longer be responsible for food at home, and if your child leaves lights on as much as mine does, your utility bills will drop.

Why doesn’t an advisor back down these costs?

There are possible two reasons:  either she isn’t very good at her job, or the much more malicious reason.

She is hoping to jack up the cost of education to raise the amount you’ll need to save. This amount will go into a fund she receives a commission for.

Now you’re thinking to yourself, there’s no way this really happens.

Sadly, you probably aren’t thinking that. So much for imagining our readers are all happy-go-lucky, believe-everything-you-read people. Nope.

Whether malicious or not, when you’re ready to start saving for college (and based on these numbers above, you should have started yesterday), be sure and discount the room and board numbers to factor in the savings you’ll find when junior is no longer eating you out of house and home.

Happy Education Planning,

Joe