College Savings
Tips to Help Pay for a Child’s Education
The cost of educating a child from kindergarten through undergraduate school can be astonishing, especially if your child attends private school for K-12.
With the average cost of a four-year college education at a public in-state university projected to reach $133,000 by 2025, many parents may find themselves discouraged before a child ever begins school. For those who choose a private education at the elementary or secondary levels, the total cost to educate one child with a four-year degree could reach nearly $190,000 by 2025.
I believe that investing in a child’s education is an important goal for most parents. Successful planning takes time, effort and research, so it’s important for parents to start early and look at the many options that exist.
To help parents pay for a child’s education from kindergarten through college, I recommend the following tips:
1. Start planning early.
The sooner parents begin planning for a child’s college education, the better. Why? Because time will be on their side. The sooner they begin to save, the more time their savings will have to benefit from compound interest. Parents should aim to save as much as they can, even if it’s less than $50 per week. Consider this: If parents of a newborn who sock away $200 per month in an account earning at least 4% per year for the next 18 years, will amass $56,319. However, if these same parents wait until that child enters high school to begin saving, they will have to save over five times that amount per month or $1,100.00 to match the same savings amount. Obviously, saving over $1,000 per month for a family will be extremely taxing on a monthly budget, if not unrealistic. This is why parents must start saving for their child’s college education as early as possible.
2. Consider paying tuition for private elementary/secondary education in full.
For parents who choose to register their children in private school for elementary and secondary education, paying the tuition and fees can prove to be difficult. However, with planning, it is possible to overcome these difficulties and guarantee your child benefits from an education in whatever school you choose. When the decision is made to send a child to private school, parents do have numerous choices available to them. Many primary and secondary schools offer discounts for paying tuition in full at the beginning of the year or partial discounts for bi-annual or quarterly payments. This option may be particularly attractive to parents who receive annual bonuses or anticipate a tax refund. If your child’s school doesn’t have such a policy, ask and see what administrators will offer as an incentive for payment in full.
3. Use payment plans.
Another option is paying in monthly installments over the academic (10 months) or calendar (12 months) year. Many schools participate with an outside tuition pay service provider that establishes a tuition payment plan over the year. This option may prove easier for parents to incorporate the tuition bill into their monthly budget, thus paying it as a monthly household payment.
4. Research available grants and scholarships.
Most primary and secondary schools offer some type of financial aid, whether it’s from a scholarship or grant. Where scholarships are concerned, many private secondary schools may have scholarships available for incoming freshmen based on their academic performance or need. Check with the schools you are considering for your child to see what opportunities are available.
As far as grants are concerned, the amount you are given is based on your current financial circumstances as well as the school’s current bequests for grants. To begin the process, you’ll have to fill out a School and Student Service for Financial Aid (SSS) form from the National Association of Independent Schools. The form can be found at http://sss.nais.org/. SSS is a service of NAIS and is used by more than 2,400 K-12 schools and other organizations across the country to help assess a family’s ability to pay for an independent education.
5. Consider educational loans.
Applying for a specialized educational loan from a lender is another option for parents seeking to finance their child’s private school education. Loans seem sensible if you have assets which you do not want to sell and have the income to pay for your child’s education. Parents must keep in mind that a loan is a great responsibility and potential burden on the family budget. It is strongly suggested you seek professional advice before taking on this responsibility.
6. Ask about school discounts.
Primary and secondary schools usually offer tuition discounts for multiple children. So if you have more than one child attending the same private school, ask about a multiple child discount.
7. Look at Coverdell Education Savings Accounts (formerly know as Educational IRAs).
Coverdell Education Savings Accounts (ESA) were created to help parents and students save for future educational expenses, covering kindergarten through college. Total contributions for the beneficiary of this account cannot exceed $2,000 in any year, regardless of the number of accounts opened. Contributions are not deductible, but amounts deposited in the account grow tax-free until dispersed.
8. Open a 529 Prepaid Tuition Plan for college.
A 529 Prepaid Tuition Plan permits parents to purchase their child’s public in-state college education at today’s prices. For example, let’s say parents buy a full year’s worth of tuition for their elementary school age child today. Twelve years from now, their purchase will still be valued at a full year’s tuition at a state college or university. The value of the prepaid tuition purchase is in lockstep with current tuition prices even as they increase year after year. Currently, almost every state including the District of Columbia participates in this plan. The value of the savings is backed by the state to meet or exceed yearly in-state public college tuition inflation. For more information, visit http://www.collegesavings.org/. Take advantage of this wonderful savings tool as early as possible. If you have a newborn, now is a great time to start.
9. Consider a 529 College Savings Plan.
Another way to save money for your child’s college education is to invest in a 529 College Savings Plan. Earnings grow tax-free and if the child to whom the account was set up for decides not to go to college, the proceeds can be used by another family member. Anyone can contribute to the account, and if the child is fortunate enough to receive financial aid, any money that is unused may be withdrawn penalty-free. However, taxes on earnings will be due.
The 529 College Savings Plan can be used to pay for postsecondary education costs at most college, universities or other accredited educational institutions either public or privately owned. When parents invest in a 529 College Savings Plan, they may choose from a variety of investment options offered by the plan. According to the Investment Company Institute, mutual funds are the most used investment medium in college savings plans. As of December 2005, 96 percent of 529 savings plans are invested in mutual funds.
For more information on 529 College Savings plans, go to http://www.collegesavings.org/.
Three Solutions for College Students and Credit Cards
On average, college students have 4.6 credit cards, and 50 percent of college students had four or more cards. Seniors are graduating with an average credit card debt of more than $4,100, up from about $2,900 in 2004.
Now we know the problem, here are three solutions …
1.) Budget. Long before a student enters college- the student and their family must budget for expenses far beyond tuition, these other expenses include books, meals, school supplies, and even dorm accessories.
2.) Scholarships & Grants. Sallie Mae lists links to 12 free scholarship resources as well as provides a link to a scholarship search which allows you access to information on about 2.9 million scholarships worth more than $16 billion dollars.
3.) Upromise. About 10 years ago, a simple yet powerful idea was born called Upromise. Upromise allows you to turn everyday spending into money for college. Today Upromise boasts more than 10 million members. According to their website, www.upromise.com; “… members direct their spending to Upromise partners and earn money for college — these partners include more than 600 online stores, 8,000+ restaurants, thousands of grocery and drugstore items. All your earnings are automatically saved in your secure Upromise account. Then, you can decide if you’d like the potential to grow them tax-free in a 529 plan to pay for college, use them to pay down a Sallie Mae student loan, or receive a check for college expenses.
“Everyone can earn money for college—parents with young children; family and friends that want to contribute; students and graduates with eligible student loans to pay.
“These earning can accumulate to hundreds even thousands of dollars for college with their everyday spending.”
