College can cost a great deal of money, but it is also one of the best ways to give yourself or your children tools for success. When you look at tuition, room and board, expenses for labs, books and computers, it can be quite daunting to figure out how to pay for everything. But with planning and diligence, as well as help from the right resources, you can pay for a college education.
Planning for college expenses
It’s never too early to begin planning for your child’s college education. The earlier you start, the easier it is to save and allow your money to grow. Review your budget, and make room for a monthly contribution to a college fund if possible. Just make sure you’re not sacrificing your retirement by saving for college. While you can always borrow money for college, you can’t borrow money for retirement.
How to save
There are many options when it comes to college savings, and some have tax benefits. Talk with a financial advisor about which plans make sense for your family. Some of the options include:
- 529 plans. There are two types of these state-sponsored accounts. One allows you to save for college, while the other is a prepaid tuition plan for a specified institution. While you don’t have to use your own state’s 529 plan, many states give residents incentives to choose one of its plans.
- Coverdell education savings accounts. There can be contribution limits, as well as penalties for early withdrawal, so it’s important that you are familiar with all of the rules before opening one.
- Taxable savings and investment accounts in the parent’s name. While this option is more flexible than either of the above options, your money does not grow tax-free.
- Custodial accounts. Again, your investment and withdrawal options are more flexible than with a tax-free account. But once your child is of age, the money is theirs to do with what they want.
Not enough savings?
If you have been planning and saving but find that you don’t have enough money to cover the entire cost of college, don’t despair. Most people can’t afford to pay for everything involved. There are many federal and student loan options to help cover tuition. And even if you think your family has been able to save enough to pay for college in full, it’s still a good idea to apply for federal aid. You may qualify for a small grant or a loan with a favorable interest rate.
It’s important to have a conversation with your child about college expenses and what your family can afford. If you expect your child to pay for some or all college expenses, let him know early in high school, so he can begin saving money from summer and after school jobs.
Next step: Public or private college?
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