Paying for college is a very real concern today. In a recent Gallop survey, 73% of parents with children under the age of 18 said that they are either “moderately worried” or “very worried” about paying for their kid’s college education. Who can blame them? The cost to attend college has skyrocketed over the past ten years, and it will unfortunately continue to climb.
The average in-state public college tuition for the 2015-2016 year was $9,410 – a lot but not too horrible. That’s just tuition though. Housing, meals, books, miscellaneous school fees and supplies – push the annual cost up to right around $24,000 per year. Yes, almost $100,000 in today’s dollars for a four-year education.
What can we do to make sure college doesn’t ruin our retirement plans? Or saddle our children with tons of debt as they start out life on their own? Have a financial plan to help cover at least some, if not all, of the costs. Below are some tips to help you get started in the right direction.
Start saving for college early
Most people seem to understand this, but many don’t “get it” and act upon it, but the reality is that the earlier you start saving and investing toward a goal, the easier it is to achieve. The results of compounded returns over an extended period of time are very powerful.
If you begin investing in the year that your child is born, and you invest $200 per month every single month into an index fund (like the S&P Index) and earn 9% on average annually (about what the S&P 500 has returned historically) – you will end up with over $100,000 by the time your child reaches age 18. But of course this ignores inflation. If you need $100,000 in “today’s dollars” you’ll need to invest a bit more to out-pacing tuition rate increases.
Just in case that sounds daunting and you’re thinking “why bother?”: Even if you can only reach half, or even just one-fifth, of the required tuition cost by the time your child is ready for college, that will still be a huge help toward affording college. So start now and save what you can. If the amount you can save right now is small – do it anyway. Then when opportunities arise to increase your investment level, go ahead and make adjustments at that time.
Research college scholarships
There are billions of dollars worth of scholarships that are granted each and every year. Some might be worth hundreds of dollars and some might be worth tens of thousands of dollars. There are so many scholarship options that it can almost be a full-time job just researching and applying for them. So here’s an idea: make it your child’s “job” during their senior year of high school. If they stick with it they’ll almost certainly save more money through scholarships than they would earn working at a part-time job.
Scholarships don’t only vary in amount, but requirements. There are scholarships available only for red heads, for children of parents employed at certain companies, for children living in specific areas, for children with certain artistic abilities (like playing an instrument), etc. While the guidelines can seem restrictive, the fact that there are so many available in different formats also means a high likelihood that there are options that will work for your child.
Some states have scholarships specifically for their residents’ children. South Carolina for example has at least one scholarship option that can award up to $5,000 to a child. Do some research to see what options might be available specifically in your state. The money might only apply to colleges in that same state, but that is generally the most cost-effective education option anyway, so give those universities serious consideration.
If your child is talented in athletics they should research scholarships related to their sport also. In reality most of the money winds up going toward just a few sports, but there is often money available for less-popular options too. Sports like golf, tennis, swimming, and more, can have scholarship opportunities.
Also, have your child focus on good grades and good test scores in their junior and senior years of high school. Most colleges have academic scholarship money available for young adults with great grade point averages and high SAT and ACT test scores. It is worth taking the SAT and ACT tests a couple of times to maximize the score – and increase the chances of an academic award. (It is also worth considering SAT/ACT tutoring if the score from the first test is pretty far from your goal.)
Have your child take AP classes
AP (advanced placement) classes are offered in almost all high schools. These classes are harder because they are college-level material. At the end of each class those is a standardized AP test that, if passed with a certain score, can be worth college credits. Our daughter had taken enough AP classes in high school that she was able to shorten her required time at college by a full semester. That’s a big cost savings!
No doubt about it though – AP classes are challenging and the end-of-class tests are very hard. But they are also very achievable for someone who makes it a priority to focus on achieving the results needed for credit.
Check out federal financial aid
Complete the Free Application for Federal Student Aid (FAFSA). This will give you a list of some options to help pay for college – including student loan options (that we don’t endorse) – but also some grants that don’t have to be paid back.
Don’t forget about tax credits
There are a number of tax credits available for certain households that quality. You can read about some of these credits at the Federal Student Aid website. Check out these different options, and also speak to your tax person, to see if you qualify and what benefit you might be able to gain from these. Note that most of them are “credits”, not “deductions”. A deduction lowers your taxable income level, so you save only a certain percentage (whatever your tax rate is) of the amount. But for credits you can get a refund of the full credit amount – which is WAY better for you.
Leveraging these five tips will help you be better prepared when the time comes for your child to attend college. The most important thing to remember is the first tip of the article: Start early. The longer you wait to start your college fund savings, the more you’ll need to save. Use time as your friend to help grow your investments and maximize your results.
If you are interested in personal financial coaching, just contact us to discuss details. The average coaching session costs less than cable TV and can make a big difference in the ability to reach financial goals.
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