College Savings: Planning for your child’s education
Updated August 30, 2024 | Published August 5, 2024
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Categories:
- Banking
- Saving & Budgeting
As a parent, you want to see your child succeed. For many that means going to college and earning a degree that can help them land a well-paying job in adulthood. Sure, when your child reaches high school, they can apply for scholarships to help pay those tuition costs. But there is no guarantee that they will be awarded those scholarships. And what about room and board fees? If you don’t want your child to have student loan debt that could possibly take decades to pay off, you should start thinking about ways to help them save now.
How much does college cost in 2024?
According to research for the 2023-2024 school year, here are the average costs you might see for a four-year college program.
- Public four-year college, in-state: $28,840
- Public four-year college, out of state: $46,730
- Private four-year college: $60,420
These costs have greatly increased since 18 years ago. In 2006 the average cost to attend a public in-state college was only $5,642, a public out-of-state college was $14,719, and a private college was $22,738.2 It is safe to assume that in 18 years from now, the cost of college will be even greater. More of a reason to start saving for your child right now.
How to start saving for your child’s college fund
Consider a tax advantage savings account
529 accounts give college students the ability to withdraw tax-free dollars for qualified educational expenses. These accounts work similarly to Roth IRAs, except their purpose is for education not retirement. The downside to these accounts is that they are meant only for college expenses, and those funds must be used by age 30 or transferred to someone else who can use them. If your child decides not to go to college, you could end up with no use for these funds, leaving you to face penalties when you withdraw the money for anything non-school related.
This type of account differs from the Coverdell Educational Savings Account (ESA) made for savings that can only be used during grades K-12. This type of account may benefit you by minimizing expenses while your child is in grade school so that you can save more for their college years.
Open a second savings account specifically for college funds
Accounts like our All Purpose Club savings account are a great way to save for a specific purpose. These accounts are made to be an addition to your main savings account. You can store funds specifically for your vacation, your Christmas shopping, or in this case your child’s education. This account earns dividends on deposits over $10. So while you’re waiting for your child to turn 18, your money is growing in the account. You can make withdrawals for any reason, no penalties involved.
Open a custodial account
A custodial account is one that a parent opens in the child’s name, but the child cannot have access to it until they turn 18. The parent is the “custodian” that controls the funds in the account until then. This differs from a joint account which allows all owners to transact.
Set up a savings rule: direct deposit or recurring transfer
You can set up consistent contributions to your college fund account. Whether that is monthly, daily, weekly, or other – you can begin with transfers for as little as $5 or $10 to get the account started. Choose an account with high interest or dividends, like a money market, and watch your cash grow. You can contribute to this account by setting up a portion of your paycheck to be direct deposited, set up a recurring transfer from one account to another through your financial institution, or manually transfer at the frequency you desire.
Open a certificate
Share certificates are high yield accounts that grow your money. You make an initial deposit and choose a term length during which your money will stay dormant and earn dividends. When your term is up, you can add more funds or just let the funds you have rollover into a new term. this account will continue to grow until your child is college aged. Again, there are no restrictions or penalties for using these funds for anything other than education once they are withdrawn.
Teach your child to start saving at a young age
Your child will likely start to earn money from you or relatives at a young age. Through birthday and holiday gifts, allowance, helping out neighbors, or any other means. Start teaching them the value of a dollar while they’re young. Set up a piggy bank for them until they are old enough for a real bank. Teach them that they must keep some emergency savings and not spend all of their money at once. They can eventually keep a savings for their own college education. More tips for teaching kids to save money can be found here.
Don’t sacrifice your own retirement
Experts agree that even when you have a child to think about, you should always make sure your retirement savings are set before you start putting away money for college. There is no guarantee that your child will attend college, but you will almost certainly need to retire at some point in your life. Ramsey Solutions suggests you should have 15% of your annual household income in a retirement account before even thinking about starting to save for your child.3
Ways to help your child save for college if they’re already in high school
For some, it may take a while to get 15% of your household income in a retirement account. If you’ve reached that point when your child is older than you had expected, here are some ways you can encourage them to save for college.
Scholarships
There are many scholarships that your child could apply for to help pay for their education. There are academic scholarships, sports scholarships, creative scholarships, grants, and more. Help your child search for scholarships that would fit with their skills, background, or field of study. They can apply for more than one.
AP classes
Advanced Placement (AP) classes are offered to high school students and can earn them college credits. If they earn college credits before starting college, that means less classes they will have to take and a possibly reduced tuition costs. Just make sure that the college your child will be going to will accept those credits.
Cheaper schools
As you saw in the research, the cost to attend an in-state college is less than an out-of-state or private college. Don’t think you’re child is going to get any less of an education at a cheaper school. Some state schools, especially those in Massachusetts, have excellent programs and successful graduates. Try to encourage them to apply to these schools.
Part-time or summer jobs
Encourage your child to pick up a job when they become old enough and begin saving their paychecks.
Tuition reimbursement through their employer
Help them look for jobs that provide tuition reimbursement as a benefit. Many employers offer this for courses in their field. For example: Webster First offers tuition reimbursement to its employees who enroll in a degree program related to our institution. Plus partial reimbursement of books and fees.
Start budgeting and saving now
The best way to get started with saving is to create a budget and try to pay off any debts you have. Reduce the costs of your bills or make extra payments to your loans to get them paid off faster and free up more money to save. Then you will have more to put away for both yourself and your children. Find more resources about Saving & Budgeting on our blog.
Sources:
- https://research.collegeboard.org/media/pdf/trends-in-college-pricing-presentation-2023.pdf
- https://www.usnews.com/education/best-colleges/paying-for-college/articles/see-20-years-of-tuition-growth-at-national-universities
- https://www.ramseysolutions.com/saving/saving-for-college-is-easier-than-you-think