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Ways To Financially Plan for your Childs College Education

By: Kenyon Sutton, Financial Wellness Manager

Posted on 2/16/2022 9:04:20 AM

Young woman hugging her family at her college graduation

They say college is the best four years of your life. But it's also some of the most expensive. Public colleges, for example, costs an average of $10,338 per year in tuition. This is why early planning for your child’s education is imperative.

But that's only the, beginning. Food, housing, and textbooks aren’t included in that total. When considering those additional expenses, that $10,000 per year can quickly become $25,000 or more depending on where your child is going to school. For a four-year degree, that's $100,000. Being able to pay for that without leaving you and your child in a mountain of debt can be a monumental challenge. But here are a few ways to start planning and saving for your child's college education.

Parents reviewing their finances to determine how much they can save each month

Get Started Saving Now

Look at your budget and determine how much you can realistically put away each month, and if you happen to have some extra money at the end of the month, make it a goal to add that in as well. Be sure to put the money somewhere to earn interest so that it can grow over time. Even if it's just a small amount, diligently setting money aside every month will really add up.

Look Into Paid Tuition Plans

The cost of a college degree has continued to get more and more expensive each year. The $10,338 per year mentioned earlier is listed as “today's average rate.” According to the US Bureau of Labor Statistics, college tuition and fees have risen 1,446% since 1977. By the time your child is headed to college, that figure will likely be higher. The good news is that several states have what's known as pre-paid tuition plans, or 529 plans. There are 2 types of 529 plans. One works like a pre-paid plan while the other is more like a savings plan similar to a 401k but for educational expenses rather than a retirement plan. In either case, these plans allow you to save and pay for a portion of your child's college tuition now, at today's rates, and have it available for when they get to college.

Several states offer pre-paid plans, such as the Florida Pre-Paid College Fund. Consider these programs carefully, though. There may be limitations on where and how you can use the money you've put in, such as only being able to attend an in-state, public university. Make sure to thoroughly research each option so you can find the plan that works best for you and your child depending on where they’d like to go to school.

Invest

Investments allow your money to grow over time, as long as you invest your money wisely. Stock funds typically see the most significant return and have the lowest risk. Work with a knowledgeable financial advisor and make sure you examine your investments annually to ensure they're performing as expected. Doing this will successfully help to set-up your financial future so that you are prepared when your child is ready for college.

Tap Into Your Home's Equity

A home equity line of credit or HELOC is like a second mortgage. A home equity line of credit gives you a reserve of funds you can tap into if you need it. Instead of a lump sum, though, you get the money as needed over time. When mortgage rates are low, this is often a more inexpensive option when compared to traditional student loans.

Scholarships and Grants

Both you and your child should fill out the Free Application for Federal Student Aid every year. The Free Application for Federal Student Aid or FAFSA determines how much and what kinds of financial aid your child qualifies for, including grants and scholarships based on your family's background and finances. By filing your FAFSA, and as long as you qualify, you can knock a significant amount of money off of your child's annual college tuition costs and may even have some left over to help with the cost of books.

Apply to Public and Private Scholarships

Public scholarships are funded by state and federal institutions, such as Florida's Bright Futures Scholarship Program, which awards money for academic excellence. However, scholarships are given for all sorts of reasons besides just grades. Utilize scholarship directories to see which ones your child qualifies for and apply for as many as possible.

Get Traditional Student Loans

Tread carefully here. Try to borrow as little as possible to avoid saddling yourself or your child with large amounts of debt. It’s best to get only government-backed student loans where possible and avoid private lenders, who tend to have higher interest rates and less flexible terms. Most federal student loans have forgiveness options based on where you work and how long you’ve been paying so these tend to better options.

Paying for college doesn't have to wipe you out financially. With a bit of smart saving over time and a lot of smart planning, you can help your child achieve their college dreams.

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