I think most people understand the value of a good college education. However, college costs are increasing much faster than inflation. It wouldn’t surprise me if some toddlers today face future tuition bills of $200,000, which puts increased importance on saving for college now.
Saving for college is made more difficult by the fact that you have no idea what tuition will be in the future or what financial aid and scholarships your child will qualify for. So what should parents and their children do now to prepare for these future expenses?
1. Start Saving for College Now
As with any savings goal, the sooner you begin saving for college the better off you will be since your money will likely need time to grow. You will get by saving a lot less each year if you start saving for college when your child is two rather than fifteen.
Even if you can’t save much now, start out with something small. Even $5 a month is better than nothing and you will be surprised how quickly your college savings will grow over time. Automate your savings for best results.
2. Use Upromise & Mr. Rebates
If you want some extra cash for college, then sign up for the Upromise and Mr. Rebates. These are free programs that reward you for everyday online purchases that you are already making. If you use a credit card to make the purchase, you receive these rewards in addition to your credit card rewards, which makes saving for college that much easier.
3. Take Advantage of Credit Card Rewards
Make your normal purchases using a cash back rewards credit card and put your rewards towards your children’s education.
4. Make Saving for College a Family Affair
Parents can place some of the responsibility of saving for college on their children. Teach your children about money from a young age. Let them know what you will be paying for and what they will be responsible for contributing towards their own education expenses.
5. Saving for Retirement Trumps Saving for College
Parents should not sacrifice their retirement savings to pay for their children’s education. Saving for retirement is more important than saving for college. Your children have other resources for funding their education besides just your bank account, whereas you will be eligible for a lot less assistance if you have no retirement savings. Nobody will give you a loan for retirement.
6. Remember basic investment principles.
Learn how to invest and remember basic investment principles. If your children are nowhere near college age and you need your savings to grow substantially in order to keep up with rising tuition costs, you should probably be investing more aggressively (i.e. taking on more risk by investing mostly in stocks) than you would if your children were about to graduate from high school (i.e. more bonds and cash and less stocks).
7. Use Tax Advantaged Savings & Investment Vehicles
Using a tax advantaged vehicle, such as a 529 plan, can help your money go much further than it otherwise would.
8. Take Advantage of Free Resources
The burden of saving for college can be made much lighter if you take advantage of “free” financial assistance, such as grants, scholarships, and the various education tax breaks that are out there.
You can increase your odds of earning scholarships by getting good grades and performing well on the SAT and/or ACT. There are a number of SAT and ACT prep resources out there. For example, Revolution Prep offers prep courses and private tutoring for both the SAT and ACT.
You can also use SAT prep books and ACT prep books to prepare for these exams on your own. I never studied before I took these standardized exams. I can’t help but think I may have done a lot better on them and earned better scholarships had I actually prepared for them.
Some of the best universities out there are even “free,” such as the military academies. I have a close family member who attended a military academy, got a superb education, and never had to pay a nickel in tuition. He had to serve in the military for a certain period of time after graduating, but he was glad to serve his country and sure enjoys being debt free.
9. Choose your College or University Wisely
Take into consideration how good a school really is, how much tuition and other living expenses will be at that school, how much money the student will likely be making upon graduation, job placement statistics, what financial aid the school offers, and other important factors.
I have some friends who started at an inexpensive community college. It was easier to get in and much easier to qualify for scholarships. The academics were also an easier transition for them than a 4 year school, so they were able to get straight A’s and earn a scholarship to a top 4 year school after earning their Associate’s Degree.
I know a lot of people who chose schools based on where their friends were going, where the best parties were, and other such criteria. Some of them ended up attending a school with incredibly expensive tuition, located in a very expensive city, chose majors that don’t pay very much, and are now drowning in student debt and hoping someone will bail them out. It just doesn’t make much sense to me.
There are a number of great resources online, as well as a number of books that can help you find the right school for you, such as:
10. Ask Others to Help
Consider asking friends and relatives to make a contribution to your child’s 529 Plan or other education account as their birthday or holiday present. My little childrens’ toys are generally lost or broken within a few days or weeks of receiving, but a financial contribution can continue to grow over time and help pay for something truly valuable.
Using a Financial Advisor
If you need help with your education planning, a qualified financial advisor can help you determine how much you should be saving for college, what investment vehicles to use, and how to invest that money in the most appropriate manner given your circumstances and goals.
Additional Information on Saving for College
For additional information on saving for college, you might read the following books:
- Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents
- How to Go to College Almost for Free
- The Ultimate Scholarship Book 2013: Billions of Dollars in Scholarships, Grants and Prizes
What is your strategy for saving for college? What did you do that worked well? What do you wish you would have done differently? Leave a comment below!
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