Earning a bachelor’s degree is important because it provides people with increased access to job opportunities and offers increased earnings potential. But paying for your child’s college isn’t easy. The cost can even be daunting for those enrolling their child in college or university for the first time.
College is expensive. According to statistics from EducationData.org, the average cost of college in the United States is $35,720 annually per student.
What should the average parent do to finance the college education of their child? Think of this the same way you should start saving for your retirement in your 20s. Start saving for your kid’s tuition sooner instead of later if financing their higher education is one of your financial goals.
Here are four suggestions that will help you pay for your child’s education:
- Come up with a Savings Plan – and Stick to It
The sooner you begin investing in your child’s university or college education, the better. Just like any other investment goal, compounding interest and time are your most valuable assets and best friends. The earlier you begin saving regularly, the less you’ll need to save in the long run.
Review your budget to figure out how much of your hard-earned salary you could devote to college savings. Even if the amount is just $40 a month, that’s a good start. As your expenses go down and your income goes up, you could bump up your savings rate.
If you are unable to save anything just yet, don’t fret. Reach out to trusted family members to find out if they may be interested in giving your kid’s higher education fund a jumpstart.
- Consider Tapping Equity from Your Home
Using your home equity to help your kids pay for college is an option. Take note, though, that this is risky so make sure to think carefully about this move.
A potential way to access cash out of your house is a home equity loan. This is advantageous if the mortgage interest rates are considerably lower than the interest rates on student loans. What’s more, it can extend the term of the debt, reducing the payment.
When considering this option, perform a home equity loan comparison by checking the offers made by online lenders, credit unions and banks. Don’t forget to look at interest rates and loan terms.
Also, you need to make sure that you don’t default on your payments when you do take out a home equity loan. Defaulting on a student loan will damage your credit standing. If you default on a home equity loan, however, you could lose your house.
- Set up a 529 Plan
Another popular way for you to pay for the college tuition of your child is by starting early with a 529 College Savings Plan. This allows you to contribute more than a conventional savings plan and take out the funds to pay for college-related costs without incurring tax charges or penalties.
You can invest the money you’ve set aside for your 529 Plan in money market funds, mutual funds, bonds or stocks. You even have the option to pick a profitable portfolio based on the age of your kid. Invest your funds as early as possible.
Take note, though, that every state (including the District of Columbia) provides a version of this plan. The exact benefits and rules will vary. Read your state’s 529 Plan or get in touch with a trusted financial advisor to set this plan up for you.
Typically, the information you’ll need to submit is your name, date of birth and social security number (SSN). You’ll also need a transfer from your checking account. Some states may require a minimum contribution amount so make sure you follow the rules. Also, don’t forget to set up an automatic contribution arrangement to fund your 529 Plan consistently.
- Apply for Federal Student Aid
Filling out and submitting the FAFSA, also known as the Free Application for Federal Student Aid, is a rite of passage for every parent of a high school senior. Once you submit it, you’ll get a Student Aid Report (SAR), which gives you details on the work study programs and grants your kid might be eligible for. You, however, won’t know until the college or university your child was accepted send a financial aid offer.
Before you complete and submit a FAFSA application, think about repositioning some of your assets. Paying down credit card debt slightly ahead of schedule can work in your favor when you need to apply for student aid.
Financing your child’s college education can be overwhelming, but it doesn’t need to be. Take note of these suggestions, so you’ll be better equipped to get smart and creative when paying for your kid’s college costs.