If you are a new parent or your kids are still young, the cost of paying for college has most likely already crossed your mind. Although most parents recognize the significance of a college education in today's world, it doesn't change the fact that college is also an expensive investment for most families.
For the 2019-2020 school year, the average cost at an in-state four-year university in the United States was $21,950. For an out-of-state public college, this figure climbed to $38,330. And finally, private college tuitions skyrocketed to a staggering $49,870. Is your wallet hurting yet?
If those numbers gave you heart palpitations, take a deep breath. Paying for college does not need to clean out your bank account, and while it may be challenging to save for your child's college education, it's certainly not impossible. Regardless of your financial situation, some tried-and-true methods can make this seemingly impossible task work.
Here are some financially effective strategies to start saving for those hefty college bills.
1. Start now!
When should you start your child's college fund? The truth of the matter is, it's never too early to start.
Getting a head start on saving gives your money a longer period to grow through compound earnings. Additionally, if your family ends up having any emergencies down the road, you will still have time to recover from any financial hiccups.
In some cases, it may not be possible for you to start saving now. And that's okay! If you are in debt, need to set up retirement savings, or don't have a current emergency fund (generally three to six months' worth of living expenses), these are your top three financial priorities and should come first.
Every family should do what's right, based on their personal financial situation. Don't let a later start date deter you from saving money for college later.
2. Set a realistic savings goal.
How much should you be saving for your child to go to college? Many factors will impact this decision, some that might be difficult to answer right now, especially if your child is still in diapers.
Consider how long your child might go to school. Will they be attending a two-year or a four-year university? Will they be attending a public or private college? Are they interested in grad school? All of this will impact the amount of money you spend on tuition fees.
Another critical factor to consider is the amount of money you can realistically afford to spend on your child's college education. Remember that you don't need to finance 100% of your child's college tuition personally. Make sure that you are being practical and are not stretching your finances too thin. From financial aid to student loans, there are many options available for you to utilize.
Lastly, you will want to consider how much college tuition will cost by the time your child graduates from high school. With tuition costs rising 4% annually, the cost of college right now will undoubtedly change in the years to come. There are online resources, including virtual College Calculators, to help you with your college planning needs.
3. Open up a 529 Plan.
If you expect your child to pursue some form of higher education, discuss opening up a 529 plan with your financial advisor. Also known as "qualified tuition plans," 529s are savings plans that encourage saving for future education costs and are usually state government-sponsored.
529 Plans are typically tax-friendly and allow for tax-free growth. In other words, the money grows tax-free and can be withdrawn tax-free for qualifying expenditures.
The good news is, you don't need thousands of dollars to get started. Some states only require $25 to open a 529 plan.
There are many perks to opening up a 529 plan. Firstly, you can change beneficiaries anytime. If one of your children scores a free ride to Yale on a soccer scholarship, you can switch their 529 plan to fund another child's tuition. Additionally, family and friends can also contribute to your kids' 529 plans. Finally, you have the freedom to put money in your own state's 529 or another state's plan. Peruse the state-by-state options available; your financial advisor can help you determine which program is best for your family.
4. Open a Roth IRA.
You might be thinking, "Wait, isn't a Roth IRA for retirement?" Although Roth IRAs are typically used as retirement savings accounts, they can also pay for higher education costs. Account-holders can withdraw money penalty-free before they reach retirement age (59 ½) to help pay college fees.
Unlike the 529 Plan, family and friends cannot financially contribute to a Roth IRA. Also, while there won't be a penalty for withdrawals going toward higher education costs, earnings could be taxed if money is withdrawn before the account holder reaches retirement age. Be sure to review your options with your financial and/or tax advisor before withdrawing money for education expenses from a Roth IRA.
5. Search for Scholarships.
Although this will happen a little later in your college savings journey, having your child land a scholarship or grant is a great way to save money on college tuition. Unlike student loans, this is money that you never have to pay back, so it's well worth the effort. Securing the right scholarship and getting a few hundred to thousands of dollars can make a monumental difference when it comes to paying for college tuition costs.
With thousands of scholarships awarded every year, where should you begin your search? Once your child starts high school, the school's college counselor should be able to provide you with a variety of resources to help you find scholarships.
6. Get a little extra help.
Last but not least, don't feel like you need to do this all on your own! Many family members, particularly grandparents, genuinely want to help out financially. If friends and family want to give your child a present for their birthday, graduation, or other special occasions, instead request money to go directly into your child's savings account or 529 Plan.
It's never too early to start doing this. And the beauty of having a 1-year-old is that they won't even realize they are missing out on the latest new toy on one of many gift-giving occasions.
Susana Bradford is a conceptual copywriter with more than ten years of editorial experience. She is a frequent contributor on Bold, where she specializes in education and parenting content. She loves to cook Italian food and play piano and make pottery in her free time.