Outside of retirement and house purchase, there may not be a more important financial goal that requires preparation than your children’s education for higher education. While college savings may seem daunting, early planning and careful savings can make the goal more attainable for many parents. Here are four steps that can help you along the way.
1. Estimate college costs
Realistically see what higher education costs are likely to be when your child is ready. Even if your son or daughter is still learning to walk, you can estimate your tuition fees. Historically, university costs have risen faster than the standard inflation rate. According to The Trends Board’s Trends in College Pricing 2016 report, average tuition and fees to public four-year colleges increased by an annual rate 3.5 percent higher than the broader inflation rate between 2006 and 2016. View free online college savings calculations to estimate tuition and fees at public or private institutions, such as the SavingforCollege.com website.
Use the estimate as a guideline when talking to your partner about how much you would like to contribute to your child’s education. Do you wish your child to contribute? Do you cover the costs of books, room and board and extracurricular costs? If you have several children, what is your financial strategy if your children choose different university paths (eg private school versus public, 2 years versus 4 years, graduate school, etc.)?
2. Start putting money aside as soon as possible
There is no substitute for saving. Your future self – and your child – will thank you for starting early. Create a habit-forming strategy, such as saving a fixed amount every month, setting aside a regular bonus or raise, or saving your tax refund. Remind yourself that even a modest amount will make a big difference in tackling your child’s education.
When you’re ready to put your money to work, choose a savings tool that suits your financial situation, risk tolerance and target amount. One of the most popular options is a 529 plan, which is specifically designed to help families save for higher education. Money invested in a 529 is managed by a state or educational institution, although you have a choice of investments. When withdrawing money for qualified tuition fees, no tax is payable on the income collected in the account.
Other tax-efficient savings options include Uniforms Gifts to Minors Act (UGMA) accounts, Uniform Transfers to Minors Act (UTMA) accounts, tax-free savings bonds, and Coverdell education savings accounts. There are also taxable account options so you can choose the vehicle that best suits your family.
3. Explore options for financial support
It can be difficult to save enough to cover all educational expenses, especially for families with multiple children or if you balance other financial goals. Scholarships, grants and loans can help you fill in any gaps. The United States. With the Department of Education, you can predict whether your family is eligible for federal student aid before completing the free federal student aid (FAFSA) application when your student enrolls in college. Even if you don’t expect to need federal help, completing an FAFSA may be required if your child wants a job study job or qualifies for merit-based help through the institution. Many scholarships are available for high school students of all levels, so encourage your child to explore local opportunities.
4. View your savings plan as your child gets older
Periodically review your strategy to ensure it is on track to reach your financial goals. Remember, you can re-prioritize and save more as university boarding day approaches. Bring your child into the conversation as they grow older. Discuss the level of support you will provide. Help your child consider different career paths and higher education options by evaluating them to see if they are realistic and within your budget. While other factors come into play in determining the school that best suits each student, it is important to include costs as one of those considerations.
Overcoming the challenge of paying for higher education starts with a plan. Understanding the true cost of tuition and tuition will help you establish an effective strategy to achieve your financial goal.