Have you ever asked yourself this question: “When should I start saving for my child’s college?” If so, then the standard advice given is to start early. (In fact, a Google search on “save early for college” shows about 500,000,000 results!)
Not everybody follows that advice, and reasons for that are wide-ranging, including how more immediate expenses can capture more of your attention. Or perhaps you’ve experienced a job loss or unexpected medical expenses that derailed your budget.
As step one, if you already know you’re starting late with saving for college for your children, you might want to figure out what roadblocks currently exist for you.
These may include allowing perfectionism to stand in your way, fearing the unknown, focusing more on what needs to be handled today, working on smaller tasks instead because they’re easier, lacking motivation, not being sure how to get started, distraction and being intimidated by the process that lies ahead.
Which reasons resonate with you?
Step two could be devising a strategy that allows you to save as much as possible between now and when your child will need money for college.
Getting a late start with college savings
The reality is that, as college tuition prices continue to rise, it can be increasingly harder to catch up on saving for college expenses.
According to data presented by US News and World Report in September 2019 — gleaned from multiple sources — the cost of 2019–2020 tuition for public universities is averaging $10,116 per year, with the cost of private universities averaging $36,801 per year.
And that doesn’t include housing expenses, transportation costs, books, supplies, or anything else needed during that time.
So, what do you do if you’re late getting started?
When figuring out how to pay for college, consider the one-third rule. This strategy involves saving enough money to cover one-third of the total cost of college expenses, planning to pay another third out of your current income and relying on student financial aid for the final third. If you can save more than one-third, go for it! But, if you can’t, at least you have this one-third plan as a baseline strategy.
Another strategy could be to get the entire family to participate in this savings quest. Your child can play a big part, in fact, by performing well academically, and then exploring which schools might offer scholarships or otherwise provide aid based upon that performance.
To get the best ACT/SAT scores, especially if performance concerns exist, it might help to invest in prep courses. Your child could also ask family members to donate to their college fund as a birthday or holiday gift.
529 plans are qualified tuition plans that are sponsored by state governments, state agencies, and educational institutions, with the two types being prepaid tuition plans and education savings plans. At least one type of 529 plan is available in each of the 50 states, plus in the District of Columbia. Here are more specifics of each type:
Prepaid tuition plans allow you to buy credits at participating colleges and universities — note that eligible colleges and universities, in this case, are typically public and in-state. These credits can then be used for tuition payments in the future, and for mandatory fees, but usually can’t be used for housing.
These plans are typically sponsored by state governments, with residency requirements — they are not federally guaranteed, although some states do guarantee funds.
If your funds are not guaranteed, then, like all investments, it’s possible for you to lose some or all of your investment. And, if your child ends up attending a college or university that isn’t part of the prepaid tuition plan, then you may not be able to take full advantage of what you’ve invested. In fact, it may only pay a “small return on the original investment.”
Education savings plans, meanwhile, involve opening an investment account with funds available for tuition and mandatory fees, as well as room and board.
When you withdraw funds from this type of plan, they can “generally be used at any college or university, including sometimes at non-U.S. colleges and universities.” Investment choices include numerous mutual funds, exchange-traded fund portfolios (ETFs) and a “principal-protected bank product.”
There are no federal protections for mutual funds or ETFs, either, but some bank products that are principal protected may be covered by FDIC insurance.
Here’s a caution provided by the U.S. Securities and Exchange Commission: “As with most investments, investments in education savings plans may not make any money and could lose some or all of the money invested.”
What if you have a financial windfall, perhaps through an inheritance or large bonus? You can actually contribute up to five years’ worth of contributions in year one of your 529 plan, which would give you the opportunity to front-load your savings and take greater advantage of tax-free growth of your account.
Finally, here’s a question that’s sometimes asked about this strategy: When is it too late to start a 529 plan? The answer: If your child hasn’t yet started college, it’s not too late to take advantage of this type of plan.
There is a free program, as just one example, that provides financial rewards towards college for parents and students alike who shop at certain retailers. At UPromise.com, retailers deposit a portion of purchases into an account designated for a student’s college fund.
Once you set up an account, you can invite friends and family to participate by registering their credit and debit cards, and each time they shop at approved retailers, your child will benefit from extra contributions to their college fund.
More tips for parents starting late
It can also make good sense to think about how to make college more affordable, and here are four tips to consider:
• Encourage your child to take advantage of advanced placement (AP) credits during their junior and senior years of high school. If your child takes a course considered to be AP, and scores 3 or higher, then many colleges will count those as college credit hours. And, the more credits your child starts with in college, the fewer they may need to take and pay for during college years.
• Explore what grants are available for your child. These are funds that don’t need to be paid back.
• Help your child apply for scholarships in a strategic, targeted way. School counselors can often help with this endeavor and, by doing so, your child can go after opportunities that may be lesser known — perhaps ones more suitable for their strengths and academic goals. It also makes sense to find out about merit-based scholarships offered at your child’s college of choice.
• Consider using digital options for expensive textbooks. If your child rented all the textbooks from a library in digital form, you could potentially save as much as $4,800 over a four-year period. That’s definitely not chump change.
Here’s one more thing to consider — while you’re focused on helping your child save and then pay for college, you’ll likely also want to keep your eye on saving for your own retirement.
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