Saving up for college is never easy. The average annual tuition at a private school is nearly $35,000 for private school, and nearly $26,000 for out-of-state students in public universities. In-state students attending public schools fare much better, but it doesn’t dispute the fact: affording college is costly for any parent.
But the key to avoiding a financial disaster later down the line is preparing as early as possible. Planning for college when your child is a toddler may seem trivial now, but it will be well worth it down the line. Yet, according to Sallie Mae, only 56% of parents are actively saving money for their child’s education. Don’t fall into a bad situation: as soon as your child is born, your mind should be on high-gear. But even if you’re a bit behind, you can get started today. Here are five key tips for planning your child’s financial journey to college:
Get Your Teen Involved
Now that your teen is ready to off to college, it’s time they start learning more responsibility. While you certainly will be handling a bulk of the work, they should be doing what they can to make a difference. Be open and transparent about how you’ve been saving up for their college tuition up until that point, and how you plan on continuing to do so. Show them the numbers and statistics to give them a better picture of what to expect.
You should begin having these conversations with them towards the end of middle school to instill those values, and allow them to implement them starting in high school. For example, encourage them to take AP classes, which provide them with college credit and shave off more dollars from tuition costs. They should also open a savings account, get a job and save money on their own, or participate in summer programs. And lastly, as they get closer to applying for colleges, they should be working on getting their hands on as many scholarship opportunities as possible.
Talk to a Financial Planner
A financial planner can prove instrumental towards your financial planning process. If you’re unclear about which account you should use, which plan is best for your budget, and how much you should be saving, a financial planner or advisor is a great place to start.
“The tricky part about preparing to send your child off to college is that there are no clear guidelines or rules,” says Griffin Financial, a financial planner in Anaheim CA. “Instead, many parents get lost in the research, and still return with no concrete answers about what steps to take next.”
One study from Fidelity found that 64% of families rely on their financial advisors to keep them on track with their college savings plans. And furthermore, 67% of those who do have a financial advisor believe they are much better-equipped to handle the tricky jargon and financial details regarding college.
Consider a Prepaid College Tuition Plan
Prepaid tuition plans save you from the inflation of educational expenses. With this plan, you lock in tuition prices as they are currently. This is very helpful if your child is still young, and tuition prices have historically risen steadily. This type of plan will help you get a great deal on state college tuition, and come with additional tax breaks and scholarship opportunities. However, as with any investment, you should read up on the pros and cons first.
Invest in a 529 Plan
One of the most common types of college savings plan is a 529 plan. A 529 plan allows you to make after-tax contributions to an account, with your child listed as a beneficiary. Any money that you contribute can be invested, and gains in those investments aren’t taxed as long as the money remains in the account. Every penny is tax-free when you pledge to use those funds towards educational purposes. Some states even have tax incentives when you use this plan. The majority of states have a least one 529 plan available, however, you can also invest in plans outside of your home state. Furthermore, the funds aren’t affected if your child doesn’t decide to go to college in the state where the plan was invested.
Less Traditional Options
If you can’t afford to send your kid to college and financial aid isn’t enough, it’s not the end. There are always other options on the table for your child. Two great options are community college and a gap year. Community colleges are far less expensive, and your child may be able to take out federal student loans on their own. Gap years have also proven very effective for many students, especially when combined with work and volunteer programs.