Costs continue to play a determining role in families’ choices for college. And the unfortunate reality is the price for higher education continues to climb at a steady pace.
According to US News, the average tuition to attend an in-state public school annually is $9,716 whereas for a private school that average skyrockets to $35,676. Keep in mind this doesn’t include expenses related to textbooks, living expenses, and more, so the total might be far higher than the average.
This is why it’s important to take advantage of all the options that are available. By doing so, it can reduce the financial burden on your end. Here’s a closer look at some of the opportunities available to you:
Plan Now for the Future
Similar to buying a house or saving for retirement, paying for college is a long-term goal. With this in mind, it’s important to prepare financially for it by doing some of the following things:
- Reduce all unnecessary expenses such as eating out, cable bills, etc.
- Pay off debt as quickly as you can
- Set small savings goals for your college account
- Meet with a personal banker or credit counselor to maximize savings opportunities
Save Money in an Education IRA
Regular savings accounts are great for setting goals for moderate expenses. However, when it comes to college expenses, you might need something with a higher rate of return; this is where an education IRA might come in handy.
How it works is you can deposit up to $2,000 per child into it every year. Therefore, if you start shortly after the birth of your child, you could have as much as $36,000 saved in 18 years!
IRAs do have a variable rate of return, meaning you could end up earning much more than you ever would with a savings account. What’s more, any money earned from investments is tax-free.
Invest in a 529 Plan
If you want more financial flexibility in how much you can contribute, then 529 plans are a smart option to consider. With these plans, your maximum contribution varies based on your state’s laws, with the average being $300,000 annually.
Other benefits of this plan include you can transfer beneficiaries (from one child to another) if you’re saving for more than one college education. And anything you earn from investments is tax-free.
This said, personal finance guru Dave Ramsey advices families to study all plans carefully and to avoid any that would alter investment plans based on the age of your children.
Take Advantage of All Financial Aid Opportunities
As your child enters high school, this is the time to develop a plan to minimize college expenses. One way to do this is to take advantage of any AP classes (if your child qualifies) since it gives him or her college credit you won’t have to pay for later.
In addition, during their junior year, start to explore all scholarship opportunities that might be available to them. This includes any community, civic or ones related to their field of study once they enter college. And it’s important to target the small opportunities with the same vigor as the larger ones since earning a collection of small scholarships can really add up.
Lastly, consider a different track toward college graduation. Many community colleges offer programs where you can finish some of your undergrad work there then transfer to a four-year college to complete your Bachelor’s. Considering community college is much less expensive than your traditional four-year option, even going for two years will save you considerably.
As part of readjusting your finances, now is a great time to ensure you have the right insurance policies for you. Contact an independent Cole Harrison agent today to have them review your policies.