What is the best way to start saving for a college education?
Students today can take advantage of a large number of loan, grant, and scholarship opportunities to help them cover the costs of higher education. However, even with these financial tools, paying for college is still something you want to financially plan for.
Simply put, college tuition continues to rise, far outpacing inflation. Also, many college students who have to rely heavily on student loans leave college with tens of thousands of dollars’ worth of debt.
Fortunately, parents can take some measures to ease the financial stress that their children will face when starting college. It all comes down to starting a college savings plan early.
Just how costly is college? According to the College Board, a moderate budget -- which includes tuition, fees, and room-and-board -- for an in-state public university for the 2017-2018 academic year came in at an average of $20,770.
The moderate average cost of a private college at the same time: That figure clocked in at $46,950.
Those are the prices now. Depending on how long your children have before they reach college age, you can bet that the costs of attending college will have risen even higher.
College tuition and fees are not falling. According to a September 2017 article in U.S. News & World Report, over the last 20 years (August 1997 to August 2017) the average tuition and fees at private schools have jumped 157 percent, 194 percent for out-of-state tuition and fees and 237 percent for in-state tuition and fees. Those figures are in comparison to a 52.7 percent increase in the consumer price index over the same period.
If your child has three years before he or she is ready for college, you can expect tuition to increase by a factor of 1.13. So, if the yearly tuition at your child's favorite college stands at $20,000 today, you can expect it to rise to $22,600 in three years. Moreover, if your children will not be ready for college until 12 years from now, you can expect that $20,000 tuition to be $31,857.
Of course, this assumes that college costs will continue to rise at their current rates. That might or might not happen. However, as a parent, you must assume that college costs will continue to increase. It is the only way to make sure that your children will not have too much student loan debt when they graduate.
According to The Institute for College Access & Success, average student loan debt for the Class of 2016 ranged between $20,000 and $36,350, depending on the state. The likelihood of graduates having debt also had a relatively wide range between 43-77%. Those spreads were dependent on both the state and college choice.
It is not easy for graduates to get started on their new lives with student loan bills. Many of them will be working entry-level jobs that have lower starting salaries.
Fortunately, there are tactics you can us to help make it manageable.
The key is for parents to start saving for college as early as possible. That way, parents will not have to put too much away every month. If your children are still in elementary school, for example, you can get away with stashing as little as $50 a month in a savings account devoted to your children's college education.
You can also take advantage of savings vehicles designed to help parents save for college. Some of these programs include the Coverdell Education Savings Account program and 529
College Savings Plans.
Where do you find that extra money for college? Maybe you can cut back on eating out. If you take a lunch to work each day rather than hit the local fast-food restaurant, you could save $40 or so a week. Those are dollars that can go to your children's college education. Maybe you can give up that gourmet coffee on the way to work or cancel subscriptions to magazines that you no longer read. You might also give up or reduce your cable-TV service.
It is also never too early to begin researching potential scholarships and grants. These programs can take a hefty bite out of the cost of a college education. Scholarships today are not only available for sports or athletic achievements. Students can receive scholarships based on their skills with foreign languages, community service, or writing talents. Parents and students just have to do the research to find a scholarship program that fits their children.
These seem like small steps, but they can add up to big savings. The key is to start taking these small steps as early as possible. Saving for your children's college education too late can make the task seem financially overwhelming.