The cost of higher education is always being discussed on the news, in parent groups, by your friends and family. It’s pretty much a consensus that you need to start saving as early as possible to put your kid(s) through college. In fact, even if you don’t have any offspring yet, starting a college fund now could be a smart move. It’s also never too late to start: Every little bit helps when it comes to covering tuition, housing, meals, books, and all the extras that college life demands.
What Does College Really Cost?
For the 2018-19 school year, tuition and fees at an in-state, four-year public college will cost an average of $10,230, according to the College Board, while a private, non-profit four-year school will run you $35,830. That’s not even including room and board! Over the past 10 years, four-year in-state tuition rose by 35%, while tuition at private colleges rose by nearly 26%.
How Much Do You Need to Save?
Student loan company Sallie Mae® reports that in 2018, six out of 10 parents had started a college savings fund, and a third of those parents reported saving more in 2018 than ever before. Which is really heartening, because it’s estimated that 18 years from now, four years of tuition at a public school will cost $106,114. That means, if you started today, you’d have to put away nearly $500 per month (not accounting for interest earned) to pay for college tuition in full. Consulting with your financial advisor can help you decide how much you need to save.
How Are Parents Saving?
Over the past few years, 529 plans have grown in popularity. Savings nearly doubled from 2016 to 2018. Along with pre-paid college savings plans and Coverdell Education Savings Accounts, dedicated college savings programs hold 40% of all college savings funds. Below is a brief snapshot of some college savings plan options.
529 savings plans. A 529 can be used for tuition, fees, supplies, and other necessities for enrollment, and in a few cases, may even be used for room and board. You should consult with a qualified tax advisor to learn about the benefits of these plans and whether they are right for you.
Pre-paid tuition plans. There are two types of pre-paid plans: One is for in-state public colleges, and the other is for private schools participating in the Private College 529 Plan. You’ll need to research whether your state offers a pre-paid tuition plan, and if it is guaranteed, as not all are.
Coverdell Education Savings Accounts (ESAs). This is a much more restricted option with income limits imposed on all contributors. Because ESAs involve so many limitations and restrictions, talk to a tax or financial advisor to determine if this is the best option for you.
Whatever savings plan you choose, saving successfully requires making regular contributions to the financial instrument of your choice. Just as you are probably contributing to your 401(k) or other retirement account automatically through your paycheck, setting up automatic payments to your college fund will make contributing that much easier. Once the money is out of sight, so to speak, it’s out of mind, and you’re less likely to miss it..
Still Worried? Start Slow
Still seeing visions of dollar bills flying away into the sky? Starting the kids off at a two-year college could really help you keep costs down. Tuition and fees at a public two-year school will total about $3,660 in the 2018-19 school year. Having the kids get required classes out of the way before really concentrating on their major could save you between $7,000 and $32,000! Two-year colleges have grown immensely in popularity and status as four-year college prices have climbed.
Can't pay for it all? Consider...
Sharing the cost with your student
Tapping into your home equity
*We are not a tax advisory firm. The information contained in this article is for informational purposes only and may not reflect current tax year rules and regulations. Consult your tax advisor or the IRS for current tax year rules, restrictions, and regulations.
Please do your due diligence when deciding on a college savings plan. Plans mentioned here may have additional requirements and restrictions not listed in this article.