It’s hard to find anything that comes close to the pride and joy that having children can bring you. And one of the best gifts we can give them is a solid education. It means reading to them when they’re toddlers, helping them with their homework, and leading the way to college.
It’s a good idea to start putting together a college plan as soon as possible.
As the end of high school nears, not only grades and school attendance are important, but here are the potential expenses associated with entering college. Waiting until then to consider the cost of participation could be mind-boggling.
Whether you plan to pay the entire bill or cover only a portion, you might want to start thinking about how much you can save each month to reach your goal.
Related: How to apply for a student loan
Consider future costs
When considering saving for college, think about the potential cost of when your child is actually enrolled rather than focusing on what it costs now.
There is the issue of tuition and fees, usually reported as a single number. The averages for the 2020-2021 academic year, according to CollegeData:
- $ 10,560 at public colleges (for state residents)
- $ 27,020 at public colleges (for out-of-state residents)
- $ 37,650 in private colleges
The “cost of attendance” for a year includes this figure and, generally, room and board, books, supplies, transportation and personal expenses. For the 2020-2021 academic year, CollegeData estimated the average cost of room and board alone at:
- $ 11,620 in public colleges
- $ 13,120 in private colleges
Living and eating with mom and dad will obviously reduce these costs.
The average price of books and supplies for public and private college students was $ 1,240.
Now, let’s say you want to estimate what the education costs might be years down the road when your kid leaves for college. Assuming 15 years until your child starts in first grade and a 5% increase in costs per year, here is the estimate per year in 15 years for tuition, fees, accommodation and board:
- Cost today at a four-year public college, rate in the state: $ 22,180
- In 15 years: $ 46,111
- Cost today in a four-year public college, out-of-state rate: $ 38,640
- In 15 years: $ 80,330
- Cost today in a four-year private school (average): $ 50,770
- In 15 years: $ 105,547
Keep in mind that most students take more than four years to complete a bachelor’s degree. In fact, most take five or six years, according to the National Center for Education Statistics.
Those are big numbers, but every student who qualifies can get some sort of federal student aid, according to the federal student aid office. And then there is merit aid, or merit scholarships, which are based on academic achievement or other talents or skills. Merit aid does not have to be reimbursed.
University savings vehicles to consider
There are several options and accounts to help you save for your child’s college education. Some offer tax benefits and others offer flexibility, so if your child decides to drop out of college then you should explore the plan that best meets your specific needs.
Ways to save for college include:
- A 529 plan, which falls into two categories: education savings plans and prepaid tuition plans.
- Coverdell Education Savings Account
- UGMA / UTMA accounts
The difficult part of deciding when to start saving for college isn’t always as simple as choosing a savings plan. It may be less about “when” than “how”: finding room in your budget to cover your education expenses and all your other financial goals.
Balancing University Savings with Retirement Savings
If you’re like many young parents, you might be wondering how to balance your college savings with all of your other expenses, including debt and pension contributions. Establish a savings plan that does not compromise your retirement planning or taking your household finances down is a great place to start.
Scholarships and student loans may be available to help pay for your child’s education, but the same can’t be said for your retirement nest egg. You better consider how long you will need retirement money and how that compares to four to six years towards a bachelor’s degree.
To get a better idea of how much you’ll need to retire, AARP advises asking four key questions:
- How much are you going to spend?
- How much will you earn on your savings?
- How long will you live?
- How much can you withdraw from your savings each year?
A study found that the combined income and savings of parents and students account for almost half (47%) of the funding families use to cover full tuition. He also revealed that parents pay 10% of the total amount owed by borrowing, and students cover 14% on student loans and other sources of debt.
Parents deciding when to start saving for college might not want to see it as a prospect that I have to pay for everything. If you still don’t know how to balance the two goals, that’s okay. At the end of 2019, before the financial repercussions of COVID-19, many non-retirees were struggling to save, the Federal Reserve found.
These eight tips for finding “hidden” money might help you start thinking about funding retirement and college at the same time.
As the college enrollment period approaches, you could have a family discussion about how much student debt you and your child are willing to take on, if necessary.
What if I still have student loan debt?
Many parents who are wondering when to start saving for their child’s college may also wonder how they can reduce their own college debt. Student loan debt in the United States climbed to $ 1.71 trillion, the Fed reported. That’s an average of $ 37,700 in loans each for 45 million Americans.
If you find yourself in student loan debt while saving for your child’s college education, there are at least four options this might help you free up more money:
- Federal Student Loan Consolidation
- Federal student loan exemption
- Federal income-based repayment plans
- Refinancing of private and / or federal student loans through a private lender
With refinancing, depending on your credit history and income, you may be eligible for a lower rate than you currently have on your student loans.
This could mean savings over the life of the loan, depending on the repayment term you choose. But be aware that if you refinance federal student loans, you will lose any repayment plans or protections offered by the federal government, such as public service loan forgiveness and income-based repayment plans.
When to start saving for a child’s college education The earliest would be best. First, however, it’s best to make sure you’re on a stable financial footing, and then, if possible, to find money here and there to save for your children’s college.
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