This was a good article I found written by Thomas Humphrey, from Brownsville, TX.
Saving for your children’s college expenses is no easy feat, whether you’ve started saving years in advance or are behind on your savings. Thankfully, there are ways to make the savings process easier no matter what stage you are at.
A college degree used to give a young person an advantage in their career. Today, a college degree has become more of a standard. Naturally, saving for college has become much more important. (For related reading, see: Pay for College Without Selling a Kidney.)
According to a Fidelity College Savings Indicator Survey, parents of 10th graders and beyond say that they wish they had:
- Saved more each month.
- Opened a 529 savings plan earlier.
- Treated contributions to a college fund like a monthly bill.
- Boosted savings by 1% every year.
- Prioritized college savings over impulse buys.
- Opened a cash-back credit card with rewards tied to a dedicated savings account.
If you have some of these same regrets, don’t be disheartened. If you are a bit behind, here are some adjustments you can make today, to make up some of that lost time:
1. Open a 529 Plan
529 savings plans have been proven to perform best over a period of a decade or more, but it may still be worth it. If you only have a few years left to contribute, you’ll naturally have a lower risk tolerance and should gear the plan with more conservative investments.
Consistently contribute as much as you can to whatever fund you decide to set up. Contributions made from every paycheck quickly begin to add up. If you’re starting late, you’ll want to be as aggressive with this as possible.
2. Dedicate Additional Income
If you’re concerned that the amount you can save is just not going to accumulate quickly enough, you might look for temporary income that you can set aside entirely for the college fund. If only one spouse is working, the other could take on some part-time work.
3. Have Kids Contribute to Costs
Have your kids contribute to their education costs. A national study conducted in 2012 by the University of California found a correlation between college student’s grades and how much they were contributing to the cost of their education. The more they contributed, the better their grades. (For related reading, see: The Dangers of Using Your Retirement to Pay for Your Child’s College.)
4. Set Up a Roth IRA for Your Child
This would be funded by the students themselves. They can do so as long as they are working in the years that they make the contributions. The interest earned will remain in the account for retirement, but the contributions may be withdrawn, free of tax and penalties, for college.
5. Look for Extra Streams of Money
Any way that you can save money is helpful, no matter how small. For example, you’re going to be paying household bills anyway. If you pay them all with a cash back credit card and have the cash rewards linked to your college savings account, you will be contributing even more money to your college fund. By itself, this won’t generate a fortune, but every dollar counts.
Make sure you pay off the balance every month so that you don’t incur interest.
6. Consider An In-State School
Most high school seniors have a preference for what colleges they’d like to attend. Sometimes this preference is largely influenced by peers and marketing. College costs have spiked, with private institutions charging more per year than in-state colleges, and out-of-state colleges costing more for non-residents.
An in-state school is often the cheapest option.
7. Take Core Subject Classes at Community College
This is becoming a popular way for students to cheaply take classes that are required and will transfer to their college of choice. The first year of college is filled with core subjects and prerequisite classes. Many students choose to spend a year, or even two, at a local community college, and then transfer to a more expensive school. This can save a lot of money.
8. Make the Most of Higher Education Tax Breaks
Taxpayers can receive tax breaks if they are paying for higher education costs. The Hope Credit is available to taxpayers who have incurred expenses related to the first two years of post-secondary education. The Lifetime Learning Credit is available based on the first $10,000 in post-secondary education expenses paid by the taxpayer during the tax year. Refer to IRS publication 970 to see if you qualify for these or other tax benefits related to education.
Paying for college is becoming a stressful situation for many people due to the rising costs. Thankfully, there are ways to combat this issue, whether you are about to start college with little to no savings or if you have years to prepare.
Research the schools your child wants to attend, analyze costs, compare to your current savings or income, and determine the best strategy to approach paying for education using the eight tips given above. If you want your child to attend college it’s possible, regardless of your situation.