Authored By Diédre Barret – Senior Vice President of Sales and Marketing for Guaranty Bank.
The price of higher education has never been higher, and the average cost for just one year of tuition, room, and board at a public in-state school is over $20,000. At the same time the U.S. Department of Education reports that a college education is a “necessity for individual economic opportunity.” Knowing how essential it is – but how expensive it is – saving for college is a must. Here’s how to start a college fund and still keep up with your other expenses.
First things first
The best way to begin saving for college is simply to begin. It’s easy to get caught up in everyday expenses and emergencies and to keep putting college savings off. It’s also easy to rationalize that college could still be years and years away. But, those years will go by quickly.
To be ready, first make sure you’re in the best position to save. Pay off any outstanding debt first, and aim to have an emergency fund of three to six months to cover any unexpected costs. By doing this you won’t be tempted to “borrow” from a future college fund going forward. After this is set, then get in the habit of putting some amount of money away every month, even if it’s just a small deposit. It will add up over time!
Set up the right account
In addition to traditional savings accounts, there are accounts specifically designed to save for college.
529 Plans are typically College Savings Plans that function like a Roth IRA. They work by investing your after-tax contribution in mutual funds or similar investments. Much like other investment accounts, the value of your 529 will go up or down depending on the account’s performance.
529 Plans can also be Prepaid Tuition Plans, which allow you to pay the tuition of a participating in-state public college in advance. The benefit of these plans is that you can “lock in” at the current tuition rate. The downside is that most prepaid tuition plans only cover tuition, and not room and board.
Get the kids involved
Finally, remember that kids and teens can be empowered to start planning for college financially, as well. Savings accounts can be opened at any age. Students can also take Advanced Placement (AP) courses that can earn college credit before they graduate high school. They can also aggressively pursue scholarships and grants to help bring costs down.
It’s never too early to start saving for a college education. To learn more about savings options and opportunities, contact us.