How to save money for college
The average cost per year of a public college is around $6,000 a year. Multiply that by the four years (at least!) it takes to get an undergraduate degree, and you're looking at paying at least $24,000 for a college education, and that's just in tuition alone. Housing costs, books, and living expenses make college an expensive investment. In addition, students who go to a private school or an out-of state school can even pay up to $40,000 a year for college.
While student loans are always an option, saving money for college is smart; not having student loans to pay off will definitely be a blessing for any new college grad. But how do you go about saving money for college? The following guidelines will help save money for college:
|
|
If you can, start early.
The sooner you start saving the better. This goes for parents as well as students who are beginning to think about college. If you plan on putting money away for your child, if you invest $2,000 a year starting at age 8 and get a 10% return on it annually, your child will have over $30,000 by the time he or she is 18. That's about $166 a month.
If you're older and your parents haven't put any money aside for you, that's alright too. Start saving as much as you can now. Get a part-time job and set aside a certain percentage for college costs.
Consider a 529 Plan.
This is a count designed specifically for college accounts. A 529 has a number of benefits and is one of the best ways to save for college, at any age. The tax breaks make it an attractive option, as the investment grows tax-free (although it is not tax deductible). In addition to providing a number of tax breaks, some of these plans even allow you to "pre-pay" for tuition at today's rates - an excellent idea since the cost of tuition usually rises each year. The rising costs are usually minimal, but they add up. Parents who contribute to a 529 for their children don't have to worry about the recipient dipping into the funds, either - the donor retains full control over the account.
These plans are state-run and there are over 100 of them, so check with your bank and state to see which one best fits your needs. It pays to shop around to find the best one.
Coverdell education savings accounts
A Coverdell education savings account is another option to consider when saving for college. Similar to a 529 plan in that the money contributed grows tax free until it's taken out, a Coverdell actually allows for more tax breaks. However, the annual contribution is limited to $2,000 each year. If you start young, though, it will still cover a large chunk of college costs. A Coverdell also allows you to invest the contributions in any type of stock or mutual fund. In addition, it's not just limited to college - money in this type of account can even be used to pay for private elementary or high school tuitions.
College is expensive, and it certainly isn't getting any cheaper. Saving for college as soon as possible is the best way to help cut the costs of education, and there are many options that allow you to save for college.
