Whether your children (or grandchildren) are 2 or 20, there’s one big thing probably weighing on your mind: How to pay for college. You’re not alone. According to recent studies, 42% of parents surveyed say their top money concern is paying for their child’s education.
The figures are daunting. Estimates project the cost of yearly tuition at a private college will be over $130,000 per year by the time today's grade schoolers reach college. The key to tackling these overwhelming figures is to have a strategy and long-term approach to saving for higher education. Here are our 9 Keys to Education Planning:
- Engage expert help early – The numbers may be overwhelming, but they aren’t insurmountable. The earlier you start saving, the more likely you are of being ready to afford school when the time comes. Engage an experienced financial planner / accountant with a proven track record of success.
- Estimate your needs – The savings goal for your child’s higher education should be estimated early in the game so you know exactly what you need to work towards. Be realistic when managing expectations. Your child may want to go to Harvard or Yale, but economic circumstances may dictate a state school with in-state tuition. If your goal for your child is to also attend professional, post-graduate school, know that tuition for graduate school is substantially higher than under graduate.
- Slow and steady wins the race – The key is to work continually on your goal. A small amount, contributed on a regular, ongoing basis will add up before you know it. Add a timeline to your budget for funding higher education.
- Set up a 529 savings plan or Coverdell Education Savings Account – Coverdell Education Savings Accounts (ESA) have largely fallen out of favor since the inception of 529 savings plans, but an ESA can still be appropriate in certain circumstances. ESA and 529 plans allow earnings to grow federal tax-free. Taxpayers are also able to take tax-free disbursements from the account as long as the money is being used for qualified education expenses.
- Look into pre-paid tuition – Some states have prepaid tuition options. These plans allow you to pay for tuition at the current rates and have your child attend in the future, when tuition rates will presumably be higher. There are some inherent risks to prepaid tuition though. First, your child may choose not to go to college. In this case, most prepaid tuition plans will refund the principal payments made but not any interest earned. Second, the cost of tuition may actually go down. While it seems unlikely and hard to imagine, technology has disrupted other industries (imagine if you prepaid for taxi fares before Uber came into being.)
- Teamwork makes the dream work – Make your children partners in saving. Keep the goal of affording higher education in front of them. Encourage them to put a portion (or all) of birthday, holiday and other cash-giving occasions into their college fund. If they contribute funds, they will feel more vested and responsible for their education. Once they are old enough to get a job, teach them to “pay themselves first” by putting a portion of their earnings into college savings.
- Get knowledgeable about financial aid – There are tens of thousands of scholarships for students of nearly every educational background imaginable. Some are means-based, others are merit-based. Some are even specific to field of study and ethnic and sociological background. Learn as much as you can about the options available to your child. High school and college guidance counselors can be a great resource and can provide a wealth of information about grants and scholarships.
- Look into Post-Secondary Education Options – Many schools have adopted programs that allow high school students to take college-level courses to receive high school and college credits simultaneously. In some states, these programs are subsidized and tuition for the college courses are inexpensive or free. This can save tens of thousands of dollars in tuition and allow your child to graduate faster than their peers.
- Be prepared for change – The one constant in educational planning, over the last 20 years, has been change. Federal loan plans and subsidies, originally implemented to make college more affordable, have actually driven up tuition costs. As new plans are introduced, and old plans are modified or eliminated, the cost and methods of paying for tuition will also change. An educational savings plan should be frequently revisited to ensure that the assumptions the plan was based on remain accurate.
Saving for college is incredibly important, and the earlier you start the better you’ll fair. Working with a skilled, experienced professional will help you navigate the advantages and pitfalls around educational savings. Have questions about educational planning? Let’s talk.