Start early. When your kids are learning to walk and talk, it may seem like college is a long way off, and it is. But that time can only be your friend if you start saving as much as you can as soon as you can. An early start allows parents to take advantage of compound earnings over time. While it may never seem like a good time to set money aside, doing so even in small amounts will really pay off down the road.
Save using a 529 Plan. Using a tax-advantaged investment vehicle such as a 529 plan is a great way to save because contributions grow tax-deferred, and withdrawals made for qualified education expenses are tax-free. You may also get a state tax deduction to cover a portion of your contribution. Plus, you’ll get into the habit of saving regularly. And when the college bill finally does arrive, you won’t be scrambling to figure out where the money is coming from.
Set expectations with your child. As your child begins thinking about college and what they want to do with their life, it’s easy to get caught up in the excitement and hype of high-profile colleges and universities all over the country. Be sure to set early expectations with your child about the cost of colleges, scholarship opportunities, what money is available, and what is affordable for your family overall. Even something as small as how far away the school is can become part of the financial calculation of traveling home during breaks. After careful evaluation, if the dream school is worth it, you and your child can discuss covering the balance by working hard and/or taking out a small loan.
Take AP classes. If your child is a good, diligent student and capable of handling a high-level workload, consider having them take advanced placement (AP) classes in high school. These classes come at a fraction of the price of what they would be in college. Having these extra credits before they even set foot on campus will provide excellent opportunities, including dual majors or graduating early, both of which will save money overall.
Consider a community college to start. Community college is a great start for those who want a quality education at a more affordable price. It is typically 1/3 the cost of a four-year college and can also be a valuable interim step for the child who wants to start college but may not be ready to leave home yet or is unsure of career goals. In most instances, the community college credits are designed to and will transfer to four-year colleges and universities, where the child can finish up their final two years and graduate.
Have your child contribute. Increasingly, parents are expecting their children to take on a portion of the college costs – and today’s high school students are willing to do so. Perhaps the child can get a job on campus, work during breaks, or over the summer to contribute or take out small loans. Exploring grants, scholarships, and work-study opportunities may also help. A child who has a vested interest and is contributing financially is likely to better understand the value of college and is more likely to work hard and do well.
Trying to navigate the college process and figuring out where the money will come from is no easy task. Starting early, taking advantage of tax-saving vehicles, and setting expectations will help you and your child relax and enjoy this exciting phase of life. As always, if you’d like to discuss these or any financial strategies in further detail, don’t hesitate to get in touch with us.
*Source, Education Data Initiative
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