With tuition costs on the rise, many parents are worried about how they can provide an education for their children without bankrupting the family. Being able to afford college is a major concern for families. However, there are several smart ways to help you save for your child’s education while also taking care of your personal finances. Selecting the correct investment plans will help maximize your funds which will allow you to help pay for your child’s education.
Get A Head Start
When thinking about your child’s education is important you think ahead. Do you want to send your child to private school vs public school? The average cost for private elementary school is $9,398 per year, and the average cost for private high school is $14,205. If you are not financially stable, you should consider sending your child to a public school which is completely free. In fact, you can deposit the money you would save by sending your child to a public school, into a savings account. However, if you have the money to send your child to private school and also help them pay for college, then go for it!
What If I Have Multiple Children?
Having more than one child in college at the same time can reduce your Expected Family Contribution (EFC). The EFC determines how much need-based aid students will qualify for in the federal financial aid formula. This means that your family might qualify for more aid, but it might not be as much aid as you think. So you should still consider opening a savings account for your children. We suggest you open a savings account for each child, if your children are the same age. You will not be able to make qualified withdrawals for anyone other than the named beneficiary. You will be able to change the beneficiary name. However, it will require the account owner to contact the bank to place a request every time a withdrawal needs to be made for a sibling.
Another way to pay for college is by applying for outside scholarships. Your children should start looking for scholarships in the early stages of their high school career. For scholarships options, visit scholarship.com and fastweb.com, and you can research other gift aid options at How To Pay For College.
Open a Savings Account
Opening a savings account is a great way to contribute to your child’s education. The earlier you start saving for your child’s education, the more money you will have when the big day finally comes. If you are considering opening a savings account, here are three ways you can save funds for your child’s college education.
- 529 Plans. This plan helps families save for future college costs. Every state offers 529 plans and you can choose any state you prefer. Investment made to a 529 plan grows tax-deferred and withdrawals are tax-free if used for qualified education expenses.
- Roth IRA. Roth IRA is a retirement savings account that you can fund using your post-tax income. Though it’s intended to be a retirement savings account you can use it for college savings as well. Roth IRAs have income eligibility limits, if you have a high income you can’t contribute to a Roth IRA.
- Taxable Investment Account. This option is a regular brokerage account that is funded with after-tax money. It offers flexibility when using funds for college or other financial goals. It does not have a required minimum distributions, meaning that you can contribute whatever amount of earnings you prefer.
Get Your Child to Pitch In
If you are considering having your children contribute to their own college expenses, make sure these funds are saved in a custodial account than in the child’s own personal fund.This will be a good option especially if there’s a significant sum to contribute. Colleges expect as much as 20 percent of the student’s savings to go toward college while counting less than 6 percent of the parents’ savings. This is true even if the assets were a gift from a relative or outside source.
Keep college savings in a parents’ account and you’ll improve your chances of landing a good amount of financial aid. Keeping college funds under a parent’s thumb can offer other benefits as well. You can make sure the money funds the right accounts, such as those for room and board, while a child may choose the allocate the funds differently, skewing them more toward pizza runs and less toward the cafeteria account.
Organize Your Finances
College savings are important, but so are other expenses in your life. Make sure you are not pouring money into a college account at the expense of your own financial stability. At the end of the day, there are other options for funding your child’s education such as federal student aid, scholarships, and loans.
Ensure your credit card balance is paid off before you start focusing on a college fun. If you’re thinking of taking out Parent PLUS Loans, remember that it requires a credit check. This is where having a good credit comes to play. If you made sure to pay your credit card balance on time, you have a higher chance of getting the Parent PLUS Loans with a low interest rate.
Saving early is the best way to build for your child’s college fund. Extending yourself and your savings more each month could make a massive difference when your child heads to college. If you want to save money for your child’s college education, there’s no better time than the present to put these smart financial strategies in place.