Every spring, high school seniors wait for life-changing news: whether they have been accepted into the colleges of their choice. As universities make their selections, high school seniors have their own decisions to make. May 1 is National College Decision Day, the date by which students have to make a final choice about which school to attend.
An exciting time, to be sure. But then there’s the expense to consider. College tuition currently costs anywhere from $28,000 per year for a public college to $59,000 per year for a private college.
Feeling stressed about your college funding options? Start saving for college with these four smart strategies.
1. Start Saving for College Early
One of the best moves is to start a college savings account when your child is born. Deposit money your kid receives for birthdays and holidays into the account. Encourage your child to start saving, too, to build savings and to reinforce good financial planning from a young age. If you can spare it, offer to match any money your child saves as extra motivation.
One way to help your child save early is with a piggy bank. This makes the habit of saving on a daily basis easy. For example, if you child finds change on the sidewalk, it can go right in the piggy bank. If there’s leftover lunch money, same thing. Allowance money, babysitting money, extra change between sofa cushions — all in the piggy bank. Every small amount contributed to the piggy bank will add up and contribute to your child’s college fund. When the bank gets full, make deposits into the savings account.
2. Diversify Your Savings Strategy
Savings accounts are a great start, but there are many additional options for investing in your child’s future — you don’t want to put all of your eggs in one basket. These popular savings strategies will help you and your child save for college.
Every state offers 529 plans, which are tax-advantaged savings plans that let you set aside money for college. As long as you use the money for education expenses (tuition, books, room and board), it grows tax-free. It’s like a Roth IRA, but for college. The sooner you start saving for college, the more time the money has to grow.
Coverdell Education Savings Account
If you have a modified adjusted gross income of less than $110,000 ($220,000 on joint returns), a Coverdell Education Savings Account might be right for you. It’s similar to a 529, but it can also be used for certain education expenses from kindergarten through high school.
The Uniform Transfer to Minors ACT (UTMA)
This allows adults to contribute funds to a UTMA account for people under 21. The money can be used for educational purposes, but it’s not required.
These are one of the safest investments, though when interest rates are low, the earning potential can be limited. Savings bonds don’t have to be used for education, so if your child doesn’t go to college, they can be used for something else.
Certificate of Deposit (CD)
A CD invests your money for a set period of time with a fixed interest rate. CDs generally have a better interest rate than a standard savings account, since you’re investing the money for a one- to three-year period. However, when interest rates are low, the returns aren’t as good. Like savings bonds, there’s no requirement that CDs be used for education purposes.
3. Encourage Teens to Earn Money for their College Fund
Once your child becomes a teenager, encourage them to get a part-time job. This is a good way to stress the importance of saving. If your teen’s academic workload is a full-time priority, have them consider a summer job. Your teen can still save for college with the money they earn but in less time. And when school starts up again in the fall, they can focus on classes. Seasonal work like mowing lawns, raking leaves and shoveling driveways also presents earning opportunities.
4. Focus on Scholarships and Grants
Many parents dream of full-ride academic or athletic scholarships for their kids, but those shouldn’t be counted on. Luckily, there are numerous scholarship opportunities available (including some unusual ones). Plus, there are websites that make it easy to search for scholarships by major, college and other categories.
You can also check with your employer, which may have scholarship opportunities for children of employees, or there may be other options available through your community. Likely, you won’t find something that covers all your child’s expenses, but chipping away at the larger costs can yield hugely beneficial savings.
Federal Pell Grants are money that you never have to repay, so if your child qualifies for one, it’s a handy way to shrink your college bills. Pell Grants are awarded on need, at up to $5,815 per year. Every student should fill out a FAFSA (Free Application for Financial Student Aid) to find out what other financial aid they qualify for.
In short, it’s never too early to plan for your child’s education. Learn more college savings tips on Farm Bureau’s College Funding page. We have a variety of options that can put you at ease and make you feel secure about your child’s college fund. Talk to a Farm Bureau financial advisor about building a financial plan to help you balance college funding with your other financial commitments.