Savings for college
The college application process can be daunting for first-time parents and students. There are many steps involved – studying and taking the standardized tests, selecting schools that fit certain criteria, filling out the extensive applications, writing a stellar essay which will allow them to stand out amongst the other thousands of students competing for a limited number of coveted spots. Once that is completed, the ever-complicated FAFSA (Free Application for Federal Student Aid) form needs to be filled out, letters of recommendation need to be submitted and finally, the nerve-wracking waiting process starts. And, then the really hard part begins – deciphering college tuition costs and hoping you have saved enough for college.
According to US News data, the average tuition and fees range from $10,116 for a public university (In-State) to $22, 577 public university (Out-of-State) to $36,801 per year for a private school. While this is an average, there are many schools that charge more than $50,000 per year for tuition. And, when you add in housing, food, books and even travel expenses, you may be adding thousands and thousands of dollars to your college bill. Some things to think about as you are approaching this stage of life:
1. Don’t try to catch up by piling on risk
Like in life, often individuals feel that if they are behind the 8-ball then their approach should be aggressive and risky. Putting your money in the riskiest mutual funds and investments thinking that you will make it up is usually not the best approach. The wisest path to take is a more balanced and moderate approach.
2. Keep up with the 401(k) contribution
Don’t sacrifice your own retirement savings to pay for your child’s or grandchild’s education. Do what you can to save, but it’s important to make your own retirement a priority. A 529 plan is a college savings plan that offers tax and financial aid benefits. Although contributions are not deductible, earnings in a 529 plan grow federal tax-free and will not be taxed when the money is taken out to pay for college. During 2020, you can contribute up to $15,000 to your student’s 529 account without incurring federal gift tax.
3. Apply for all the need and merit-based aid that you can
There are thousands of local, regional and national scholarships available to incoming college students. Some are based upon a certain GPA or test scores while others are based on a variety of different criteria. Take the time to do the research on various scholarship sites to see viable options. Have your child check with their guidance office. Often, high schools post scholarship information and are knowledgeable about other places to search. And, there are also many college scholarship websites that boast millions of available scholarships and grants.
4. Look at less expensive options
Sometimes in life, you need to explore practical options. When evaluating college choices, often the local state university offers a very competitive academic education and the price tag is usually significantly less than the private colleges in the same area. It might not be your child’s first choice, but given the responsibility of having to pay off thousands and thousands of dollars of college debt, this option may just become a little more favorable.
According to a Marketwatch article, New Baby? This is how much college will cost in 18 years, published in 2017, estimates that in 2035 a state school like Rutgers will cost $463,812 for a four-year degree (includes tuition as well as room and board). Assuming a 4% growth rate on invested funds, over $14,000 would need to be saved every year if you plan to pay the college tuition in full. These numbers are staggering for many families. Hopefully, the points mentioned above have provided useful tips to put you on the right path to savings.
