A Parent’s Guide to Building a College Fund
Over the last ten years, experts claim tuition fees have risen by 35% at the public university level, with only a slightly lower increase for most private institutions. Why? Aside from the increasing demand issue and the growing emphasis on earning a college degree, universities have shown they aren’t averse to taking advantage of the federal and state school loan programs that seemingly provide unlimited funds to borrowers. Two other factors driving costs upward include state legislation and an increased focus on hiring professors to accommodate swelling student populations nationwide.
As the pressure surmounts, students continue to scavenge for tuition money and attempt to dodge crippling student debt. Now more than ever, students must assume the responsibility of helping their aspiring college students save for their education.
To do that, parents need to start saving early to avoid potential shortfalls. Avoiding procrastination is necessary because the future is unpredictable. Not to mention, there’s a finite amount of time to save. Starting early with something like a NEST 529 plan means you can contribute smaller amounts throughout the college-fund-building process.
After funneling the time and resources necessary into your soon-to-be freshman’s college savings fund, you can bear the fruits of your labor and present your son or daughter with the most priceless gift of all: a college education. With enough money in savings to cover a four-year program’s tuition costs, you can spend less time worrying about student debt and more time helping your teenager through the college application process.
For example, should your child choose to apply to the University of Michigan, you’ll need to research the University of Michigan acceptance rate. If your child’s GPA and SAT/ACT scores render the University of Michigan a pipe dream, you can coach your aspiring college student in a different direction.
Regardless of where your child attends college, you’ll need to strategize and build their college fund with haste. Without further ado, here are some ideas to get you started.
Standard savings options
While standard savings accounts don’t yield much in earnings, they’re a safe and virtually effortless way to accumulate money if you have the discipline to make your monthly contributions. Suggestion:set aside your loose coins and put these nickels and dimes towards your student’s college account.
Stock and monetary investments
If time is on your side, you might be able to accumulate significant savings by investing in the stock market. Yes, there are risks involved. However, you can mediate many risks by sticking with blue-chip stocks and using a conservative investment approach. By all means, avoid investing in risky alternatives like cryptocurrency.
These 529 plan options come with federal tax breaks. The rules for 529 college savings plans vary by state. However, there are generally two options: a prepaid tuition option that locks in tuition costs to the day you opened the account or an investment option that allows tax-free earnings. Before you opt for a 529 plan, note that you must use all accrued savings for your child’s college tuition to avoid penalties.
Education Savings Account (ESA) or Education IRA
This option allows parents to make after-tax contributions of $2K per year. Under these circumstances, all future earnings will be tax-free. Education savings accounts are ideal for people interested in investing savings into bonds, the stock market, or other allowable investment alternatives.
If your budget allows it, don’t let your child fall victim to the bubbling student debt averages. Prepare them for financial success and debt-free post-graduation life by building a college fund. Otherwise, you may have to dig your child out of a shaky financial situation down the road.