With the rising cost of college tuition these days,
it’s only natural to feel the pressure that you have
another expense to deal with. The common way to
pay for college is through a student loan. Student loan
debt has reached a whopping 1 trillion dollars and is
only going to get higher. So what can you do to
decrease the probability that your child will need to
rely on a student loan to attend college? Below I
have listed some strategies to consider as you
plan for your child’s college education. Whether
your son or daughter is just an infant or already
becoming a teen, whether you have one child or
ten—now is the time to have strategies in place
so you can have some sense of peace.
Save Today
Start saving as early as possible. One of the
biggest mistakes is putting it off. As I have
stated before, procrastination is the killer to
financial planning. Your parents were right on
this one, the early bird does get the worm.
Junior College
If your spending plan is tight, you can send
your child to a local junior (community) college
for the first two years at a very affordable cost.
There are many benefits to doing this. They
can live at home to avoid paying for room and board.
You will also be doing a test drive to see that your
child has the discipline and desire to work on a
college degree. Furthermore, in two years they will
have either completed half the curriculum, or found
that two years in college provides just the right career
they want, saving you tens of thousands of dollars
over the traditional four year university.
Education Savings Account
Formerly called the Education IRA, in this type
of account you can contribute up to $2,000 per
year per child if your annual joint gross income
is less than $220,000 ($110,000 for individuals).
You have many options available on how you
can invest the money. You have choices available
of just about any mutual fund, or you can invest in
individual stocks and bonds if you like. The earnings
in the account accumulate tax free.
529 Savings Plan
If you would like to contribute more than the $2,000
ESA limit or need to play catch-up, then consider
a 529 plan. You can contribute the maximum of the federal
gift tax law without penalties. Currently in 2013 it is $14,000
($28,000 for married couples). Each plan is sponsored by
an individual state, while a financial services company
manages the plan. You don’t have to be a resident to invest
in a state’s plan. Some state plans are better than others,
so make sure you know the fees involved and the features
and benefits of each state’s plan you are interested in.
Each 529 savings plan offers its own range of investment
options which are more limited than an ESA. The earnings
in the account grow tax free.
Scholarships and Grants
Apply to every scholarship and grant under the
sun that you and your child are eligible for. There are
so many different types of scholarships and grants
available these days. Taking advantage of free
money is a smart way to go. You can start your
search at Scholarship.com
Put Your Kids to Work
One of the most valuable lessons you can
teach your child is to contribute to their own
education. You can start teaching them early
on by having a percentage of their allowance
go toward their college fund. When they are old
enough to babysit or cut the neighbor’s lawn,
advise them to put a portion of the earnings into
their savings account for college. As they reach
the legal age limit to get a part time or summer
job then make sure they are putting some money
away for college. Your child will be way ahead of
everyone else by developing the habit of saving
money. You are helping them appreciate their
hard work and preparing them for the real world,
unlike the students that get a free ride off their
parents and show their gratitude by getting bad
grades and drunk every weekend at parties, all
on their parent’s dime.
By putting these strategies to work you will
decrease the odds of your child having to
pay for college with a student loan. You want
them to breathe easier coming out of college
without tons of student loan debt. They have
enough to deal with after college, like finding
a job and paying their own living expenses.
So establish that peace of mind for everyone
by funding your child’s college education,
starting today.