By David Anderson
The cost of a college education is higher than ever—just ask Felicity Huffman and Lori Loughlin. Those two celebrities are among the well-heeled parents caught up in a now-infamous “Operation Varsity Blues” college admissions scandal. You know what this is: The whole nation has been gobbling up news reports about the $25 million scheme for the past week.If you want to make sure that neither you nor your child ends up with piles of crippling student loan debt, you’ll need a comprehensive savings strategy to help bridge the gap between inadequate finances and rising expenses. Fortunately, there are several different methods to help you do that.
By choosing one that works for you and your family, you can come up with an approach that will give you the best possible chance to afford tuition and let your offspring leave their ivory towers debt-free. To help filter out the noise and make smart savings decisions, here are four savings options to consider.
Invest in a 529 Savings Plan
College has always been expensive, and as noted, it’s only continuing to rise in cost. That’s why considering a 529 plan is more important than ever. Also known as a qualified tuition plan, a 529 allows you to put away money for your child’s college education that grows completely tax-free. Total investments in 529s reached a record $328.9 billion in 2018, meaning people are increasingly understanding the benefits. At that time, 30 percent of college savings are in 529 plans, with the average amount saved in such investment plans having nearly doubled from 2016.The 529 plan is an example of how you can let your money work for you, because your investment earnings compound on a tax-free basis. Additionally, the money invested is “portable.” Parents can transfer their 529 plan’s beneficiary status from one family member to another via a plan-to-plan rollover.
Start ASAP and Automate
Saving for college is a long-term process, but the key is starting early. In 2018, the average amount parents saved was around $18,000, up more than 10 percent from 2016—and at its highest amount since 2013. Those savings represent just a fraction of the overall costs of college, meaning everyone could benefit from starting even earlier and saving even more.To get stared, make the process easy for yourself by setting up automatic transfers. There are various applications and tools that can help you set a goal and automatically save the amount you designate According to a Sallie Mae survey, six in 10 parents make regular deposits to their children’s college funds. This is important, as sticking to resolutions is much easier when you take this action regularly, especially when that action is automated.
So start saving now, because every dollar saved is one more dollar you won’t have to come up with later down the line.
Don’t Overlook Scholarships
Scholarships are essentially free money that you don’t have to worry about paying back. While they usually don’t cover the complete cost of schooling, they definitely accelerate the process.Make Sacrifices
If saving for college or graduate school seems too daunting a task, ask yourself what sacrifices you can make to get closer to your goal. For example, cut out unnecessary luxury expenses you can live without. These might include frequent nights out, shopping sprees, that daily Starbucks latte, and other lifestyle luxuries.Also look for ways to make additional income. Consider a part time job, a small in-home business or perhaps a clever way to make use of your unique talents (children’s birthday parties). Freelancing or finding a side gig are great options that are gaining popularity. Nearly four in 10 Americans have a side hustle to help them meet their financial goals. These sources of additional income can go a long way toward helping you put more money aside.
Save Smart
Saving up for college and graduate school requires smart and strategic thinking, and the sooner you plan, the better. In fact, 37 percent of parents are putting money aside for college before their children even reach the age of two. Getting a jump-start decreases the risk of falling short when tuition is due.By using some these college savings tips, you can improve the chances that your child will get through school debt-free and be in a good position to start a career with financial stability.