While paying for college is an investment in your child's future, it's also one of the largest financial hurdles your family may face. According to the College Board, it cost nearly $25,000 to attend an in-state public college last year, and nearly twice that for private school. And those costs rise far faster than wages or inflation.
Such figures may feel overwhelming, but here's the good news: A little advanced planning can make a significant difference. Families who create a plan for how to handle college costs ultimately save more than three times as much as families without one, and their children borrow a third less, reports Sallie Mae.
Most families will need some combination of loans and financial aid to cover college costs, but any money you're able to set aside now will decrease the amount that you or your child needs to borrow.
Here are four tips to help you get started:
- Start as soon as you can. Saving for your children's higher education costs may be a top goal, but getting your own financial house in order should be your priority. If you have high-interest debt, or don't have an emergency fund or retirement plan in place, you'll want to take care of those first. That said, the earlier that you start saving for college, the more you'll benefit from compound interest. One savings vehicle to consider is a 529 College Savings Plan, where money grows tax-free as long as it's used for qualified educational expenses, like tuition, supplies, and housing.
- Automate your savings. Set your 529 plan to make automatic deductions from your checking or savings account each month, or see if your employer allows for automatic deductions from your paycheck. Placing your contributions on autopilot ensures you won't forget to save and makes budgeting for the expense a one-time adjustment. Don't worry if the amount you're putting aside each month is small. Saving a few dollars now can have a big impact later.
- Claim state tax credits, if applicable. Depending on where you live, you may be eligible for a tax benefit for contributing to a 529 plan. Thirty-four states and the District of Columbia offer full or partial income tax deductions for 529 contributions. The rules vary by state, from $250 per beneficiary in Maine to no limit at all in Colorado, so be sure to check your state's policy.
- Get help from friends and family. In lieu of birthday and holiday gifts, invite friends and family members to make contributions to the dedicated account. Your children won't miss the extra toys when they're young, and even small gifts will add up over time. Grandparents (or anyone else) can contribute up to $14,000 each to an account this year without paying gift taxes. When your kids get older, encourage them to contribute gifts or earnings from a part-time job to the fund, as well.
It can be tempting to put off saving for college until your kids are older, but establishing a plan now will cut down the total amount you need to contribute and reduce the burden when your kids are in high school.
After all, as any parent will tell you, they grow up fast.
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