With the expense of a college education on the rise and student loan debt seemingly doubling every other year, it is vital – as a parent or future student – that you create a financial game plan.
Don’t worry, below I’m going to show you a few quick ways on how to save for college effectively. And you’ll get some additional quick tips to not pay as much for education.Â
But it is important to note, that we all have unique financial needs and obligations; however, these saving for college tips are a great starting point for you.
And this is not to say everyone must go to college or even that your child will attend college in the future. But it’s better to be prepared now, to keep the upfront money you’ll need and to keep any student loan debt as low as possible.
But with a little bit of hard-work, and discipline, you certainly can lower the financial burden of college and here is how.
Open a Coverdell Education Savings Account (ESA)
Another great way to begin saving for college is with an Educational Savings Account (ESA). Only individuals earning between $95,000 – $110,000 and couples earning less than $220,000 can contribute.
Though an ESA only allows you to contribute up to $2,000 a year per child it follows an after-tax structure, which allows your savings account to grow tax-free.
An educational savings account comes with various investment opportunities (some riskier than others) but is a better option than a traditional or high yield savings account.
Why? Instead of a 1.50% to 2.0% return from a high yield savings account, an ESA has the potential for a higher return depending on what you invest in, such as low-cost index funds or mutual funds.
However, as an ESA account holder, your beneficiary needs to use the money by the age of 30.
If your child elects to not attend college, then you can still use these funds to cover the cost of their community college, trade school, or online courses.
Signing up for an educational savings account has never been easier.
To get started, reach out to your financial institution (if you have one), or sign-up for one if you do not. From there, one of their customer service representatives will be able to assist you throughout the remainder of the process.
To speed this up, make sure you have both you and your child’s personal identification cards, bank account information, social security numbers, and home address ready to go.
UTMA/UGMA Custodial Accounts
Want another great way to begin to save for college but looking for fewer restrictions?
Then a UTMA/UGMA Custodial Account may be the perfect option for you to start saving money for college.
Outlined in the Uniform Transfer to Minors Act and Uniform Gift to Minors Act, these custodial accounts allow you to save money specifically for the beneficiary (your child or minor).
These accounts give you complete control over the money and account until the beneficiary reaches the age of 18.
Furthermore, the money can only be used in a way that benefits the child – typically for college expenses – but if the minor wants to play a sport growing up or attend a summer camp, then you can use the money in this account to cover those expenses.
Remember, the money in the account can only be used if it directly benefits your child. To create a custodial account, all you need to do is contact your bank or visit their website.
Create a 529 College Savings Plan
Opening a 529 College Savings Plan is the most popular way to build up a college savings in the United States. Like some investment vehicles, a 529 plan allows you to make after-tax contributions.
Within your selected 529, you can invest your money freely, and the gains you make from your selected investments are not taxed when used for educational purposes.
If you follow a simple investing strategy, overtime your money will begin to compound allowing you to reach your financial goals in due time.
However, for your 529 to be tax-free, you need to employ the money towards education. This includes tuition and other fees associated with sending your child to their dream college.
Though a 529 plan is relatively straight forward, there are a few other details worth noting.
A 529 college savings plan is different for each state, so make sure you research into what your state offers. Fortunately, most states offer income tax deductions, and some states will even match your annual contributions.
Again, this is all dependent on your states tax-code and regulation. At the end of the day, saving for college is an arduous process, but there are a few ways to maximize the benefits and minimize the hassle of maintaining a 529 College Savings Plan.
Getting Started
To reap the benefits of a 529, it is best to start early. When your child is born, begin by opening an online brokerage account (with your son or daughter as a beneficiary) and then choose to set up a 529 plan.
Most brokerage companies will have this plan as an option, but always check before signing-up.
Then you can set up automatic set up monthly contributions. This will allow you to take full advantage of time and investment compounding.
Next, you want to roughly estimate the total expense of college. I know this may be hard, but consider all options: In State, Out of State, Public, & Private.
With the ‘end goal’ in mind, you will know how close you are to your target number as the years go by.
This will allow you to scale back on contributions or stop them all together, allowing you to use that money towards your Roth IRA or other alternative investments.
In order to begin saving for college for yourself, your child, or other family member, you’ll need to be prepared typically with the following:
1. Basic information
Have the Social Security number, birth date, and address of the beneficiary of the 529 account (as well as your own).
2. Prepare investment choices
If you’re saving for higher education, you can pick one of our age-based options, which are complete portfolios that automatically adjust for you, or you can assemble your own investment strategy from our individual portfolios
3. Bank information
If you’re going to make your first contribution through an electronic bank transfer, you’ll need your bank account and routing numbers. You can also set up automatic contributions from your bank account to your 529 account.
Money Saving Alternatives to College
Although, today we primarily highlighted ways you can save money for college, sometimes college isn’t the best choice for you or your children.
Fortunately, we live in a time where trade schools, online programs, and specialty schools are all low-cost ways to break into a new career, without having to spend thousands.
However, our friendly college saving tips can be applied to these programs as well. At the end of the day, you want to ensure you have enough money saved for whichever educational path you or your children decide to take.
Consider a Trade School
Want to know how electricians, plumbers, and select contractors all got their start? At a trade school!
Believe it or not, these are all in-demand lucrative professions and can make quite a bit of money right away. If you like hands-on work and interacting with clients daily, then a trade school may be the perfect fit for you.
In fact, you can start making money immediately once you complete your trade school and follow-on apprenticeship.
With the average trade school costing $33,000 total, this is a far cheaper option compared to a traditional 4-year bachelor’s degree.
Not to mention, most of these programs – if not all – will assist you with employment post-graduation.
Sign-Up for an Online Program
As we move forward into the new decade, online education will continue to grow.
Though online programs pricing differs per institution and state, it provides you with numerous benefits. If you want a self-paced educational experience, then starting an online program is the best option for you.
Online educational programs are adaptive and will provide you the flexibility to work simultaneously while you finish up your degree.
Plus, many well-known colleges offer specialty degrees that are just as good for starting a career. I’m talking Harvard, MIT, and Stanford, but there are many others too.
Learn from a Specialty School
Do you have an itch to code? What about developing industry leading websites? There are specialty schools out there, like Ironhack, that will teach you the technical skills to do so.
The same options are available with digital marketing, UX/UI design, data science and more with a schooling option like General Assembly.
If you are an aspiring entrepreneur or enjoy working on complex problems, then a specialty school is a good way to get started.
Depending on what course you decide to enroll in, you can expect to pay anywhere from $5,000 – $10,000. Specialty schools are fast paced, taught by professionals, and a great way to launch yourself into a lucrative technical career.
Additional Ways to Save Money for Education
The above gave you options for you or your children when it comes to being financially prepared ahead of time.
But as the needs for education get closer, there are some additional tips to help you save money when preparing for college.
Buy used books to save money
Textbooks are expensive! And half the time, you may barely use the book. And then when you go to sell it back to the school you get a fraction of the cost. Yuck!
A great way to save money is to buy these books used online, which can save you a few bucks. Others sometimes go to the library to check it out for free, but there is no guarantee the books will be there or available.
Apply for scholarships
There are tons of different scholarships out there that you or your children can apply to lower the cost of college. You can find scholarships for all sorts of areas like academics, athletics, extracurricular activities, and more.
These are getting more competitive, but even smaller scholarships funds will add up and help you save money for college.
Work education offerings
If you are working, see if your company offers to pay for additional education or reimburses percentage of costs if you go back to school.
Many times, if it is to improve your current role or you are working while going to school, your company may offer covering education costs.
Not all do, but it’s worth finding out and taking advantage of any money towards education they offer.
Open an online savings account
Besides opening one of the education accounts above, you can open an online bank account too. This will ensure additional savings for other educational costs and especially if your family wants to avoid student debt altogether.
The reason an online savings account can be a great option, is because the interest rates are higher and usual there are no bank fees. That means more money saved!
That way your money is compounding in savings as well and it isn’t put in any stock market risks. If your child is under 18, you’ll need to be the joint account holder.
Some online bank accounts to consider:
Final Thoughts on Saving Money for College
Whether you want to save for college or a trade school, you need to consider all your options: 529 College Savings Plan, Educational Savings Plan (ESA), or UTMA/UGMA Custodial Account.
These three programs provide tax advantages and will hold you accountable as you develop the right financial habits over-time.
Remember, the best thing to do is start early and maintain monthly contributions until you hit your education savings goal.
Saving money for college is not easy, but it can be done.
The more disciplined and focused you are early-on, then the better off you will be when it is time to start writing checks to an education institution.