When it comes to planning for your child’s future, you want to help them out as much as you can. And one of the best ways of doing so is by saving your money to ensure that they have enough for their education. If you have no idea how to start, don’t worry – our in-depth guide shares several tips and answers all your college saving questions.
Our handy guide includes information on:
- Starting early
- College savings account options
- Explore grants and scholarships
- Places to find grants and scholarships
- Frequently asked questions on saving for your child’s college
Start Early
The sooner you start collecting funds, the more time you have to gain a substantial amount of savings.
Set up a savings account for your child
A traditional way to save money for your child’s future is through a savings account. Starting one at their early ages will give you the chance to contribute as early as possible.
A long term way to save up money for your child’s college is to set up automatic transfers. When transferring some of your savings into your child’s savings account, it saves you the trouble of having to do it manually.
Create a budget plan
To ensure you are prioritizing your child’s education fund, try creating a budget plan. This can be by reviewing your current budget plan and cutting down on unnecessary spending. Re-adjust your spending to allow you to consistently contribute to your child’s savings.
Avoid collecting debt
Collecting debt will hinder your possibility to save enough money for your child’s education expenses. It will create more stress on saving if you are having to spend money on debt repayment. This is why establishing a budget plan early on will ensure that you are allocating your money more wisely and safely.
Talk with a financial advisor
If you need help finding ways to save money or need any financial assistance, consider speaking with a financial advisor. They can assist your specific situation and help you create a budget plan suited right to you.
College savings account options
Look into all the different types of college savings accounts to see which one might be the most suitable for you and your family.
529 Plans
A 529 plan is one of the most used plans for college savings. Intended for paying educational expenses, this plan is tax-advantaged and sponsored by state agencies and educational institutions.
There are two different types of plans: the prepaid tuition plan and the college savings plan. Prepaid tuition allows for you to prepay tuition at certain colleges at current rates. The benefit of this plan is that you may be saving money in case the price of tuition were to rise in the future.
The college savings plan acts as more of an investment account, where you can invest money in a variety of ways, through mutual funds or exchange-traded funds (ETFs).
This plan is known to have high contribution limits, but each state is different with what those limits are.
Custodial Accounts
Custodial accounts, also known as a Uniform Transfers to Minors Act account (UTMA), grant you the opportunity to save and invest funds for your child. When the child turns 18, they gain access to the account. But be aware that the funds from this account don’t necessarily have to be used for educational expenses.
Education Savings Accounts
Also known as a Coverdell Education Savings Account, the ESA is a tax-advantaged savings account that serves as aid for education expenses. Expenses could range from tuition, room and board, and even books.
It should be noted that this plan is not meant for everyone as the contribution limit for an ESA is lower than other saving plans like the 529 plan.
To be eligible for this account, there are certain income limits you have to reach, which change often. Be sure to check out the current limits and see if you are eligible before setting one up.
Explore Grants and Scholarships
Though scholarships aren’t necessarily through saving your own money, it does make paying for your child’s college easier. Spend time exploring different grants and scholarships with your child and help them apply for a few. Doing so will ensure that your child will potentially receive financial assistance, which will help them minimize student debt.
Places to find scholarships
Guidance counselor
Your child’s high school guidance counselor is a great place to start as you begin looking for scholarships. They can also help find scholarships tailored to your child’s needs and interests.
University or College financial aid offices
If your child is set on attending a particular school, you should check with their financial aid offices to see what aid they offer for students. They can provide you with information on the different range of scholarships the school offers, including ones that are specific to the institution your child is enrolling in.
Local organizations
Several organizations around you may offer financial support to students.
Check out any local:
- Businesses
- Religious organizations
- Nonprofit groups
- Community groups
Online scholarships sites
There are many websites designed to find all kinds of scholarships, especially ones that are suited for you.
Websites like:
- Fastweb
- Scholarships.com
- ScholarshipOwl
- Bold.org
- Cappex
- CareerOneStop
Scholarships from employers
Some employers offer scholarships to their employees’ children. Ask your employer if there are any scholarship opportunities through the company.
Frequently Asked Questions: Saving for Your Child’s College Years
How will saving for college impact my child’s financial aid eligibility?
If you are worried about affecting your child’s chance of need-based financial aid, there are a few things to understand about the potential impacts.
Need-based aid
Depending on how much your incomes or assets are, it can have an impact on your eligibility for need-based aid. Generally, the higher your assets are, the lower your eligibility for need-based aid as well as how much you receive.
Parent assets vs. student assets
Some student aid assesses the parent’s assets more than the student’s. That means that filing with the parent’s assets will have a lesser impact than filing with the student’s assets.
How much should I save for my child’s college education?
There is no exact amount or recommended number you should aim for when it comes to saving, but there are several factors to consider when making a goal to aim for.
Do your research
When the time comes to start looking at colleges, looking for tuition costs can help you estimate your contributions. Though that will shorten the amount of time you have to save money, you could start younger by researching the average cost of tuition today and use that as a base to where you should hit in the long-term. You will also want to factor in tuition costs rising a lot higher by the time your child gets to college.
Consider how much financial aid your child could receive
Calculating an estimate of how much financial aid your child could receive could also give you an idea of how much you need to save. You can use financial aid calculators to help you gather an estimate.
Are there any tax advantages associated with college savings accounts?
Yes, a few college savings accounts allow for tax benefits. Typically, the 529 plans and the Coverdell Education Savings Account (ESAs) are the most common tax advantaged accounts. With the 529 plan, you can get state income tax deductions and all earnings are tax-free only if the assets are used for education related expenses.
The ESAs also allow for tax-free earnings but unlike the 529 plans, you have more flexibility with what you get to spend the funds on.
What happens if I save too much for college, and the funds aren’t fully utilized?
You have a few different options when it comes to not needing all the funds in a college savings account. To have access to the funds, you can choose to withdraw the money from the account, however there is generally a penalty fee taken from that withdrawal.
You can also just keep the account open, in case your child decides to explore more educational experiences down the road, like grad school.
If you have another child that is in need of savings for college, there is the option to transfer the funds into their account.
Can they use college savings funds to pay for expenses other than tuition, like books, housing or meal plans?
Yes, typically college savings funds can be used to pay for other education expenses, but usually does not go beyond that.
Expenses that generally qualify:
- Room and board
- Books and other school supplies
- Computers and other technology equipment
- Meal plans
Are there any state-specific programs or incentives for college savings?
Some states offer lower costs to those who participate in state-specific programs, which helps you manage and maintain the account easier. There are also a few states that issue college savings bonds. They grant you the ability to invest in a bond, which would then help fund your child’s education.
Some states also have a program that matches some of your contribution to a 529 plan, providing you with an incentive as you continue to grow your child’s college savings account.
What happens if I haven’t saved enough by the time my child starts college?
There are still several ways to finance your child’s college when the time comes.
You could consider looking into these options:
- Federal student loans
- Private student loans
- Work-study programs at your child’s school
- Research college payment plans
- Research scholarships and grants
That’s it for our handy college savings guide!
With ample dedication and prioritizing, you can significantly help your child reach the financial goals in time for them to leave for college. And remember that the sooner you start, the more you could save and the less stress you might have trying to finance your child’s education.
