College remains to be the path to the likelihood of a better financial future despite its rising costs. According to research by the Federal Reserve Bank of New York, a college graduate on average will earn almost $30,000 more per year than someone with only a high school education. That’s a significant amount of money, especially when you think about earning years for a person’s lifetime.
College is a big investment for most families. Those who find themselves hustling when their child is in high school will have their work cut out for them. The importance of saving money early can’t be stressed enough. If you have a child and want to start saving money for college, doing it as early as when they are born can help manage those costs.
Taking Out Student Loans to Pay For College
To afford the cost of higher education, many parents and their students will take out loans. Student loans can be offered by the federal government or private lenders such as banks. The federal government’s loans are called federal student loans and typically will have lower interest rates and other benefits that aren’t available through a private lender.
The average cost of an in-state public college is $9,687, according to U.S. News data. That cost bumps up to $21,184 for out-of-state students who want to attend a public college. That sticker price only goes up when you get into the private and more elite schools. Taking out student loans for four years will multiple these costs.
So if your only option is paying for college with student loans, you’re going to be spending some serious dollars. Plus, that is less money you’ll have to cover things like retirement. Taking on debt to finance college is a financially stressful and burdening path to take. Instead, parents should focus on the importance of saving money. Let’s look at alternatives to student loans by focusing on how to save money for college tuition. Don’t feel like you have to be burdened by debt when you want your child to have the best possible future.
How to Save Money for College Tuition
Parents who want to get started with their child’s education savings account can use many different strategies. Here are some ways you can try when starting a college fund for your child below.
Yes, this has been mentioned already, but you can’t stress enough that an early start can be the silver bullet when saving money for college. Starting a college fund when your child is 5 or 6 versus 9 or 10 can significantly boost your savings.
Even better is starting an education savings account when your child is born. That will give you 18 years to grow that nest egg and take advantage of the power of compounding. Can’t afford to put more than $20 away at a time? It all adds up in the end, so even if you can’t save much starting out, it’s better than nothing.
Open and Contribute to a 529 Savings Plan
The 529 savings plan is an investment that is geared toward funding college. Typically, these plans offer the chance to grow the account tax-free. The earnings portion of withdrawals (typically federal, may also be the state and or local) is free of income tax when used for qualified education expenses.
There are even plans that will offer a state income tax deduction when contributions are made to an in-state plan. A few states will provide this deduction of contributions made to any 529 plan, regardless of its in-state. Review details in your state to find out what benefits might be available.
Every calendar year, up to $10,000 of distributions can be used, federally tax-free, to pay for tuition at an elementary or secondary private, public or religious school. For these reasons, starting a college fund should begin with opening a 529 plan.
Create a Budget That Sets a Realistic Savings Goal
You have your reasons to save money, but it can be hard to plan if you don’t know where your money is going now. That’s why a budget is such a great financial tool. A budget will tell you how much you’re spending, what money you have leftover, and help you figure out tweaks you can make.
Before you create a budget, you need to understand how much you’re spending now. Otherwise, you won’t be able to build a realistic budget. Figure out how much income you’re bringing in from your job and side hustles if you have them each month. Next, take a look at all your expenses from previous months and categorize them by fixed (rent/mortgage, insurance, etc.) and variable (entertainment, dining, clothes) costs.
When you subtract your expenses from your income, hopefully, you will have money leftover. Those funds can be used towards savings goals like your child’s education. If you don’t have money left, look for ways to adjust your expenses like spending less on eating out and canceling your cable subscription.
Now you’re ready to build a budget. Decide on a budgeting strategy like the envelope system to use. Then you’re ready to start following it each month. Yes, this sounds easier than it often is in practice. Don’t give up if you’re having problems with staying on your budget. Remember that one of your main reasons to save money is for your child’s future.
Use Money From Windfalls Like Tax Refunds
You might work for a company that gives all their employees a bonus at the end of the year based on how well they did. Or you expect to get a tax refund when it’s tax season time. Use these unexpected or irregular sources of money to fill that college fund.
Another creative way to find extra money is by looking for things that you used to spend money that you no longer do. For example, when your child starts going to public elementary after graduating from daycare. You’re already used to paying for daycare each month, so why not redirect those funds into saving for college. If you’ve finished paying off your student loans or credit cards, then instead of spending that extra money on other things, make it into another college savings opportunity.
Share Education Costs With Your Child
It’s not uncommon these days for parents to expect their children to pay part of their college expenses. High school students today are willing to help. So get your child involved in the conversation about saving for college. Discuss them working part-time or in summers when they go to college to help manage those expenses. There are other ways your child can help bear some of the responsibility. Work-study, grants, and as a last resort, can take on student loans to fill gaps or supplement funding.
Help Your Child With College Savings
Parents can team up with their students to help defer the costs involved with going to college. Talking to your child and coming up with a plan can cut those big price tags effectively. Discuss the ideas below with your child to determine what strategies may work for your situation.
Get a Scholarship
Scholarships can pay part of or even all of a student’s college tuition! Encourage your child to get good grades, participate in sports or other activities, become a volunteer, etc. These activities while in high school can help increase their chances to get a scholarship.
Some scholarships are awarded based on the level of financial aid a student needs. It is typically based on the parent’s income. However, sometimes there’s a variable like grades that can also impact their chances of receiving a scholarship.
The FAFSA or Free Application for Federal Student Aid is the primary way for students to receive scholarships and grant money through colleges. So be sure to sit down with your child and fill out this application before the deadline.
Don’t just rely on the FAFSA for free money, though. You and your child should look for private scholarships that wouldn’t be part of FAFSA. For example, there might be a local Chamber of Commerce that offers $1,000 scholarships to local students going to college. Guidance counselors are likely to give you tips on how to find scholarships.
Side Hustles For College Students
A college student isn’t going to have a huge bank account. Having a side hustle or job will help them pay for groceries, coffee, and the late-night pizza on a Friday night. It could also help cover some of the books, fees, and a bit of the tuition. Here are a few ideas on side hustles for college students:
- Drive for a ride-sharing company like Uber or Lyft
- Driver food, groceries, etc. on apps like DoorDash, Postmate, and InstaCart
- Offer to dog walk, pet grooming services, or pet-sitting
- Tutoring kids online
- Mobile detailing services or car wash
- Mowing people’s lawns
- Removing snow
- Become a part-time Virtual Assistant
There are so many different ways that a college student can earn some extra cash. Non-traditional ways like affiliate marketing, becoming a YouTuber, or selling on Etsy could generate a lot of money. Or they can stick with more traditional ways like working at a local retail store.
Start Out in Community College
Funding four full years at a university adds a lot of cost to that college degree. But if you can save on your first two years, it can make those expenses more manageable. Community college is a fraction of the cost of going to a four-year school. So even if you have to borrow money to pay for college, you’ll need less if you spend the first two years attending a local community college.
Talk to your child about considering this option to minimize costs. During the first two years, students are usually taking core curriculum. Make sure that these general education courses will transfer to the four-year college they plan to complete their bachelor’s degree.
Another way that you could potentially save is if they continue to live at home while attending community college. Each school year’s average cost of room and board at a public college or university is $8,887 and moves up to $10,089 for a private college or university. It costs about $20,000 for living in a dorm room that is usually closed for holidays and open for about 9 months a year.
Find Ways to Save On Everyday Things
Get the whole family involved in looking for ways to save money you can use for college savings. If your child wants to play baseball and basketball after school, have them pick one. Look for used sports equipment or consider renting instead.
Instead of buying name-brand products, opt for generic brands that don’t compromise quality. You can purchase essential things like notebooks, pencils, folders, etc., for a lot less, often less than $1 instead of four times the price.
Teach them how to compare prices when looking for products. There are apps like ShopSavvy that allow you to look across different retailers to compare prices.
Shop for Colleges
Don’t just limit yourself to shopping for deals on products and services. Apply this same philosophy to select a college. Help your child understand what schools are a good financial fit.
Aside from comparing the college costs of tuition and other fees, your child can also look for schools that award aid in a manner that will benefit them the most. For example, if your child has high test scores, G.P.A., and class rank, they can target schools that award substantial amounts for merit-based awards.
Have Them Plan Out Their Degree
If your child heads off to college without any idea of what degree they want or career field they want to go into, it can get costly. That’s because this usually means they’ll be spending time and money taking classes for credits that they don’t need.
You can help your child explore careers by getting them involved in volunteering, extracurricular activities, internships, part-time employment, and taking coursework and electives in secondary school. They’ll be able to find out what they like to choose a more definitive path.