Tips on Saving for College for Parents
Tips on Saving for College for Parents
Saving for college was not at the forefront of my mind as a young child and teenager growing up in the suburbs of Los Angeles. There was no personal finance class in high school, nor were my parents well-versed enough in English to explain the finer aspects of financing and loans. In college, I was privileged and fortunate enough for them to pay for my tuition and college expenses, so finance was not my strong suit.
Now that I'm grown up and thinking about raising a family myself, it's natural for me to wonder what paying for college would be like for my future children. According to the New York Times, college tuition, fees, room and board have been increasing at a rate of 4% annually for the past decade. This means that college, around 18 years from now, will be about $183,837.
If that's how much college will cost, what are some ways that I can save now to prepare for this tuition? Here are a variety of options to think about when considering how to save up money for college. Note, this is a broad overview of options, not a comprehensive list.
Accounts for College Savings
- Start a College 529 Plan. Unlike other savings accounts, a College 529 Plan allows you to save money for future educational expenses. Earnings work like 401Ks, and can grow tax-free and are free from federal income tax when used on qualified educational expenses. This is a good option for parents because, in most states, these are also eligible for tax deductions or credits.
- Redirecting gifts. Receiving a massive amount of toys and clothes that add to your clutter and never get used? Offer your relatives the option of gifting the money they would've used on gifts to be put into your child's college savings fund. Programs like UPromise offer flexible options for friends and family to contribute.
- Set up a Roth IRA. While offering fewer tax benefits than a College 529 plan, a Roth IRA is still a viable savings option for your family to consider. While it's technically an account for retirement, funds can also be used for college, though withdrawals are not tax-free. However, savings placed inside a Roth IRA account can still grow tax-free.
Utilizing your savings doesn't have to be the only way that you help your child finance their college expenses. There other options, such as scholarships, grants, and loans.
Other Cost Reduction Options
- Fill out the FAFSA (Free Application for Federal Student Aid). This application applies for federal student aid, such as federal grants, work-study, and loans. Many states and colleges also use the information from this form to determine eligibility for additional aid. Fill this out once you know when your child has decided to go to college. Check out this blog post from Ed.gov on 8 steps to filling out a FAFSA form.
- Search for scholarships. There are scholarships for any and every type of student out there, and the best way to know about them is to search for them. Aggregator sites like com and Collegeboard.org allow you to build a profile which they can then match to scholarships that are offered with your characteristics. It doesn't hurt to apply, however some diligence is required on your child's part in searching and applying.
- Prepare for and take the PSAT. 9th and 10th graders in high school have the option to taking the Preliminary SAT (PSAT) test, which is administered by Collegeboard but co-sponsored by the National Merit Scholarship Corporation, which offers rewards for students who have high performance on the PSAT. Not only does the PSAT offer good practice for the SAT, it enters them into a chance to earn scholarship money towards their college.
- Look for state grants. Some states offer college grants, such as California, based upon financial need, so definitely check to see if your states offer grants for higher education.
Get Your Child Involved
- Set expectations. Talk with your child in their teen years about how much your family can realistically contribute to your child's future college education. It should not be a surprise to them later, as they are preparing to head to college. Even if your family can't fully cover the costs of your child's college education, work with your child with thinking of how to cover the rest.
- Encourage them to work. Working is not only a way for your child to contribute to their own savings fund, but the experience is also something that is looked favorably upon by colleges. Teach your child the value of hard work and saving, as working will help them have greater personal investment in their own finances.
- Get them invested in personal finance. Teach your child the benefits of saving and delaying gratification on spending at a young age. Help them understand the concept of loans and savings, as well as how to make wise decisions with their money. Equipping them early will help them in college as they enter adulthood.
Don't get daunted by the prospect of paying for college! Even setting aside a small amount can contribute a lot in the long run. Looking back now for myself, knowing many of these options would've helped me to better manage my own personal finance better, in and after college.
Want more tips? Check out our article on Paying for College: 10 Tips to Help Parents Plan Ahead.