Many people dream of going to college but cannot afford to either go or send their children. This is an article for parents who want to send their kids to school but do not want them drowning in student loans. Preparing ahead of time for college can set your child father ahead in life and leave them with potentially less owed on their student loans. Parents, even if you cannot afford much, setting aside some money in your budget for your children’s college savings can make a huge difference in their life.
College prices have increased exponentially and are completely unaffordable for most families. These unaffordable costs are giving students a debilitating amount of student debt, setting them far back from success when they are first starting out.
Planning
I understand that as a parent, you probably have your own debts to pay off, but even if you save $5 each paycheck because that is all that you can afford, save it. That small amount could help pay for your children’s books. A really good way to generate a lot of money for your kid’s college fund is start when they are little. You’re definitely not thinking about college when your child is two, but you should be; saving small increments over time adds up. If you factor in any money received from birth, baptisms, birthdays, confirmations, graduations, etc., the fund can make a difference in the cost of college for your child. Put all your savings money in an investment vehicle so that by the time your child is ready for college, it will hopefully have generated some extra money.
Kids, you should be saving if your parents or guardians cannot afford to pay for your education. I know you probably don’t want to be thinking about saving but it is so important to begin saving while you have little to no expenses. Set aside a certain percentage of your paycheck if you are working and if you are not, I would consider getting a job to help pay for your education.
The later you start saving, the more you will have to save for the education, so it is only beneficial to start saving as soon as possible.
Realistic goals
Here is where society fails us. Parents and teachers tell children that they can be anything they want and do anything they want. While this is true and children should be exposed to their potential, if money is an issue, logical thinking must be done. If the average salary for the career path your child chooses is $40k, they should not be choosing a school that costs $70k a year. If they insist on going to an expensive school with a low-projected income, run the numbers with your child and be modest with them to show them the breakdown of their financial life. Blindly telling your child that they can go wherever they want without showing them the cost breakdown is setting your child up for failure. They will struggle once they graduate because they will be faced with an exorbitant amount of debt with a low salary.
Parents, shying away from the finance discussion is not going to help your child. Be open and realistic with their goals. Obviously do not crush their dreams but educate them on their college decisions and show them how much debt they will have to pay back and for how long with their career path.
Scholarships
Scholarships help with the financial burden of college immensely because it’s free money! Focus on academics and extracurricular activities to increase your chances of getting a scholarship. Scholarships are offered through the school as merit or offered through outside donors with different criteria.
Scholarships are not guaranteed but if you work hard, your chances can increase at getting one.
529 plans
529 plans may be suitable to generate money for college. How does it work you ask? A 529 account is established through a broker dealer and it allows you to invest money that has already been taxed so the money grows tax-free and as long as the money is used for qualified higher educational purposes, it is not counted under income or capital gains taxes. Generally, it does not significantly impact financial aid eligibility and can be used for vocational schools and supplies. Sounds like a dream, right? One potential downfall is the account is limited in flexibility. For instance, if the money withdrawn is not used for higher education, it is subject to tax and a penalty on earnings. Every broker dealer offers different types of accounts so look into them to see which plan works best for you.
Prior to investing in a 529 Plan, investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
Save, save, save!
Moral of the story, you need to start saving now. If you truly cannot afford college, college is not for your child, or your child does not want to drown in debt, they should consider learning a trade or entering the workforce right away. These are great options for your child to make a great income without going to college and you can be extremely successful without a college education. If you still feel as though you want to attend college, start saving now!
Talk to a financial planner to help establish a plan so that your child can go to college if they choose to do so.