College costs aren't getting cheaper these days. The cost of a 4-year degree has skyrocketed over the last couple decades, increasing by over 1,000% since 1978 according to estimates. If you're planning to go to college in the next couple years, saving money starting today helps ensure you graduate with as least debt as possible.
While the total cost of college likely seems overwhelming, saving even a couple hundred dollars a month goes a long way. This blog post is here to provide some practical tips and strategies to help save money for your college education.
Start Saving Early With a 529 College Savings Plan
College is quite expensive, but saving for it doesn’t have to be. The best way to save for college is to start early with a 529 college savings plan.
A 529 plan is essentially a state-sponsored education savings account (just like with a bank or credit union) that provides tax advantages. Contributions grow tax deferred and withdrawals are tax free when used on qualified education expenses. Many states also offer tax deductions or credits for 529 plan contributions.
Start saving as early as possible
The sooner you start saving, the less you need to stash away each month thanks to the power of compound interest. Even saving a small amount each month adds up to a lot over a couple years.
Choose an investment plan
529 plans typically offer multiple investment options. For most children's college education plan, an aggressive growth-oriented option could likely be suitable. As the child gets closer to college age, shift to more conservative investments to protect your savings. Most plans offer age-based portfolios that automatically adjust to more conservative mixes over time.
Use free resources to find the best plan
Websites like upromise.com or SavingforCollege.com offer plan comparisons and rankings to help you find the best plan for your needs. Check the investment options and any state tax benefits offered. 529 plans could be opened in any state, so compare plans across the country.
Saving for college may seem challenging, but with an early start and the right plan, you could easily get there. A 529 college savings plan is the simplest way to save money for school while also reducing your tax burden.
Find Tax-Advantaged Accounts Like Roth IRAs
With a Roth IRA, you contribute after-tax money now but withdrawals in retirement are tax-free. The contribution limit for 2023 is $7,000 for those under 50, and $1,000 if you're aged 50 or older. While that likely doesn't seem like much, the money grows tax-free for years and there's no required minimum distributions.
Opening a Roth IRA
To open a Roth IRA, you're going to need earned income from a job or self-employment. Once you have an account, automate contributions from your paycheck or checking account. Even putting aside $50-$100 a month can make a big difference over time thanks to compound interest.
Withdraw Whenever You Want
Best part of a Roth IRA? Withdraw your contributions at any time without penalty! So if college is a couple years away and you need some money for some non-qualified educational expenses, you have access to what you put in. The account also provides flexibility—you could use it to pay for college or save it for retirement. It's a win-win.
It Doesn't Hurt to Ask For Help!
Consider asking parents or grandparents to contribute to your Roth IRA. They could gift up to the annual limit, allowing you to reach it sooner and essentially turning your Roth IRA into a mutual funds account to cover college expenses. Every dollar helps when saving for college, and contributions from family are a generous method to getting ahead. If you're saving for your child's college expenses, consider starting them with something small to motivate them. Before you know it, your child's college education could be paid years before they're ready.
With the right strategies, saving for college doesn't have to be an uphill battle. Using tools like a Roth IRA, you can make the most of the time you have and start building a solid financial foundation for your future.
Find Scholarships and Grants
Finding scholarships and grants is one of the best ways to pay for college without taking on student loan debt. There are many options out there, you just have to do some digging to uncover them.
The Internet is the best place to start your search. Websites like FastWeb or Peterson’s offer large databases of scholarships and grants. You're able filter by criteria like your major, GPA, ethnicity, and location to find those you're likely be eligible for. Be prepared to fill out some profiles and applications, but the potential reward of free money for college is worth the effort.
Check With Your School
Talk to your school’s financial aid office about scholarships, grants, and work-study programs they offer. They may have certain awards for students in particular majors or those involved in certain clubs or sports. Your teachers or guidance counselors may also know of some local awards you can apply for. Don’t miss out on these opportunities right under your nose!
Many private organizations, nonprofits, religious groups, and companies offer scholarships and grants. Do some research to find those you may qualify for based on your background and interests. For example, professional organizations related to your future career often have awards for students in that field of study. Your place of worship may have a scholarship program. And some large companies offer grants and scholarships, especially those that employ people in your area of interest.
Consider Less Expensive College Options
Lastly -- consider less expensive college options like community college or vocational programs.
Community college allows you to complete your general education requirements at a lower cost. You can then transfer to a four-year school to finish your bachelor’s degree. This can save you thousands of dollars. Many community colleges have transfer agreements with local universities that guarantee your credits will transfer.
Public colleges and universities charge much higher tuition for out-of-state students. Attending an in-state school can save you a significant amount of money. In-state tuition is often half the cost of out-of-state. While the school you want may be across the country, staying in-state is worth considering for the tuition break.
Vocational or trade schools
Vocational and trade schools teach skills for various careers like plumbing, welding, nursing, IT, and more. Programs usually take two years or less and cost much less than a four-year degree. You can get started in a career quickly and with minimal student debt. Many trade jobs are in high demand and pay very well.
To pay less for college, keep an open mind about your options. While the traditional four-year university experience is ideal for some, there are more affordable paths to a college education or career. Considering community college, in-state schools, or vocational programs could help you get where you want to go without taking on too much financial burden. With planning, any of these can be a perfect match.
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