How to Save for College: A Guide for Parents
Does the thought of saving for college cause you panic? The total price tag, including tuition, room and board, and fees, averages $30,500 per year. When you multiply that by four years and times the number of kids you have, the total can seem overwhelming.
With student loan debt in 2020 totaling $1.56 trillion, it's natural to want to help your child avoid going into debt. You don't have to save your child's entire tuition, though. Any amount you save helps offset costs and reduce student loan needs.
Keep reading to learn how to save for college for your child.
Improve Your Financial Situation
You might feel the pressure to start saving now for college, but if your own finances are tight, you can't effectively save for college as well.
Say you have lots of high-interest debt. The money you're thinking about setting aside for college could decrease that balance faster. You'll get out of debt faster, save on interest, and free up more money in the long run, which can go toward college.
You also don't want to ignore your retirement savings in favor of college, or you'll have to work a lot longer before you retire. It doesn't have to be one or the other. Balance your personal financial goals and needs with saving for college to keep your family in good financial standing.
Start a Savings Account
A 529 plan is designed specifically for education savings and offers special tax breaks when you use the money for education purposes. Some states offer residents state tax breaks in addition to the federal tax benefits you can get.
You can choose a 529 plan from any state, even if you don't live there. However, you won't get the state tax benefits in that case. A 529 plan also allows grandparents and other people to contribute to your child's education.
Shift Around Money
Depending on your child's age, you might be able to shift your spending to save for college. Say you're used to paying child care or preschool tuition. When your child no longer needs those services, continue setting aside what you're used to paying as college savings.
Encourage Child Participation
Having your child contribute in various ways offsets the cost, shows the value of hard work, and makes the education more meaningful. Talk openly to your child about the high costs of college and their need to contribute.
Doing well in school to qualify for scholarships is one way your child can help. Encourage your child to take AP courses or free college classes while in high school to help get done with college faster. This reduces how much money you need to save overall.
If your child has a job, decide on a fair percentage of the paycheck for your child to contribute to the chosen savings account. Extra money, such as their tax refunds or birthday money, can also go toward college.
Figure Out How to Save for College
Deciding how to save for college looks different for every family. Balancing your personal finances with college savings is important to avoid overextending yourself.
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