Parents, if you have a child, now is the time to start saving for college. Yes, your child may only be five or ten, but you do not have a lot of time – trust us. It really never is too early to save for college and you will have some serious financial goals to set for yourself. When it comes down to it, you need to make a plan to save for your child’s future, no matter what their age.
College is expensive and most graduates, as of 2016/2017, will graduate with about $37,000 in student loan debt. But, why is it so important to start saving early on and how can you do it? Let’s take a look.
Why You Need to Start Saving Now
The cost of college tuition is continuing to rise and will continue to rise. Trends have shown that the cost of tuition has risen about 6.5 percent over the last decade or so. With those figures in mind, the cost of college in 2030 is predicted to be about $44,047, which means that a simple four-year degree will costs as much as $205,000. This is EXPENSIVE.
You need to start saving for your child’s future NOW to ensure that they will be able to receive an education when they are ready. If your child does not have any financial help from you, they may need to take out student loans and this can place them in a difficult financial spot once they enter the real world.
It is never too early to save and the more you save, the better off your child will be when the time comes. There are a number of different options available to you to help you save for your child’s education and we will go over them in the next section.
How You Can Save for Your Child’s Education
There are a couple of different ways that you can save for your child’s education and you can start at any time. So, for those of you parents who have children well into their younger years, it’s not too late.
The first option is a 529 college plan. Every state has their own and you will need to research what the requirements are for your state’s plan. A 529 plan is a type of education savings account that will allow you to save money for your child’s college related expenses. The plan allows your child to use the money at any college on the list.
The earnings that you put into your child’s 529 plan are considered to be tax free and you will not be taxed on the money when it is used on college-related expenses. One of the best things about a 529 account is that you are completely in control of it and you will be able to withdraw funds whenever you need to, even if not college related. If this does occur, you will have income tax and a tax penalty on the money, but the option is there should you ever need it. In addition, you are able to contribute as little or as much as you would like.
The second option is the prepaid college account. Almost all states offer some type of prepaid account and you should look into it. These accounts allow you to pay for college NOW instead of later. The way it works is that you invest in your child’s tuition now and then you do not have to pay any of the rate increases along the way.
For example, if college is $3,500 for the year now and you pay $7,000 into the prepaid account, you have paid for two years of your child’s education. Later on, down the road, when the price increases to $7,000 per year, you will still have credit for two years.
The idea behind a prepaid account is that you pay NOW and your child attends school later. This way, you can lock in the rates from today and not have to worry about the tuition increases later.
Final Thoughts on Saving for Your Child’s College Education
If you do not want your child to have to take on the financial burden of college alone, now is the time to start saving. You will be able to help them avoid student loans, no matter how much you save for them and they will be appreciative of it. If you do want to save, you should consider either a 529 plan or a prepaid college savings account, this way, the money is safely tucked away. If you start saving now, you will be able to save up a nice amount of money for your child on the first day of college.
Drew Cloud started The Student Loan Report after he left college. His inspiration? Student debt, of course! You can read the latest student loan news on his blogroll.