Five Smart Ways to Save Money for your Child’s Education
It may feel premature to start thinking about college tuition when your baby is still wearing a onesie: it’s not. College costs in the US have been rising for years and show no sign of slowing down. And in terms of opportunity, study after study has shown that a college degree is still the most reliable ticket to the American dream.1
The question is, how do you fund your child’s educational path? In 2013-14, state college tuitions were averaging $18,391 per year and private colleges, $40,917.2 Student loans will continue to play an increasing role in funding most future college educations, but planning and resourcefulness go a long way toward alleviating financial pressures. Additionally, any advice list has to begin with an “It’s Never Too Early to Start Putting Money Aside” message.
Start saving, and seek advice. It can be extremely difficult to put aside money with the realities of the here-and-now for costs that are still 18 years away. Time, though, is your secret weapon. Why? Setting aside $100 a month, compounded at a relatively modest interest rate of 4% a year, will add up to $24,000 in 18 years. Get advice from a financial professional early on: A financial plan will help you put away money in gradual, less noticeable increments, while still allowing you to consider other long-range priorities.
Use the right savings vehicles. Created by the government, 529 plan accounts were designed specifically to encourage college savings. Money has to be set aside from your already-taxed income, but the interest that will collect isn’t taxable. When you eventually withdraw the money, it won’t be counted as taxable income as long as it’s spent on education. A Coverdell account offers many of the same features as a 529 plan, but applies to elementary and secondary schools, too. There are stipulations, contribution limits, and age ranges on each, and even on the variety of investments you can pursue, so you should turn to a pro for help. You might also want to look into whole life insurance. You’ll be buying life insurance protection (which as a parent, you should consider as a way to provide for your children), while at the same time building a tax-advantaged cash-value asset that may one day be used to help fund college.
Have parents (and others) contribute at gift time. It may not have the photo appeal of watching a child cuddling a plush toy, but your parents may be happy to further their grandchildren’s educational goals. In fact, contributing just one Social Security payment a year into a 529 fund would add up to a helpful amount of money in 18 years' time. Grandparents may also gift money tax-free to pay for a whole life insurance policy for their grandchildren, to ensure they’re financially secure when they are gone. This insurance accumulates a cash value, money that they can use during their lifetime to fund their education.
Hire a specialist college advisor. The term “Financial Aid” can be confusing, even though virtually all post-secondary educational institutions offer it. What matters is, how much of the money has to be paid back? Student loans have to be repaid. Other types of aid, e.g., grants, awards, and scholarships, are essentially free money. Consider hiring a professional college advisor that makes a living through their knowledge of the options. Certified advisors tend to charge about $750 or more. The investment assists you with researching colleges, filling out admissions forms for financial aid, and interpreting the financial aspects of acceptance and award letters.
Think outside the box. Tuition bargains may very well be out there, particularly at in-state, public colleges. Alternatively, there may be significant grant and scholarship funding available at lesser-known private institutions, depending upon the size of the school’s endowment or even its religious mission. There are also a staggering variety of scholarship funds (although some require commitments, say teaching seniors how to use technology), even for those who aren’t athletically or academically exceptional. In addition, there may be awards within your specific community, religious group, or social group. Even if you don’t hire a professional college advisor, your own research time can pay off, expanding and suggesting educational directions that your student might not have otherwise pursued. There are other kinds of products that can help you save, too, for instance, linked credit cards, which reimburse you at 2%, payable directly into your 529 account.
By looking at the future, you’re improving it
Monitor your financial plans at least annually. Many government limits, including income ceilings and tax allowances, do change over time – often for the better. The most important thing is to plan with optimism for your family’s future, and remember that the more time you give the savings to work, the more options you’ll be making possible for your kids.
Find a Financial Representative
Want to get one step closer to achieving your financial goals? Speak with a Guardian Financial Representative and make it happen.
1Source: Sandy Baum, Jennifer Ma and Kathleen Payea. Education Pays 2013. The Benefits of a Higher Education for Individuals and Society, College Board
22013 College Board
Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
A 529 plan is a tax-advantaged savings plan issued and operated by the state or educational institution that helps facilitate savings for college.
Cash accumulations in whole life comes from dividends. Dividends are not guaranteed. They are declared annually by Guardian’s Board of Directors.