Best College Savings Tips for Parents Getting a Late Start
5 Tips to Help Jumpstart Your College Account
One financial planning goal that always seems to sneak up on families is paying for a college education. Most families get involved in meeting day-to-day expenses through the years, and don’t even begin to think about paying for college until their children are in their pre-teen or teenage years. That doesn’t leave much time to scrape together the necessary funds, and puts a lot of pressure on the need to rely on financial aid and student loans to cover college costs.
But all hope is not lost. Even parents with only one or two years until their child heads off to college can still make a sizable dent in their future tuition bill. Here's a list of the best college savings tips that have proven themselves time and again for panicked parents.
- Prepaid Tuition Plans: One big frustration for parents with little time to save is the pitiful return earned on most short-term investments. In a low interest rate environment, it is not uncommon to have investments that earn only 1-2 percent. They don’t want to take bigger risks by investing in an unpredictable stock market. A prepaid college tuition plans offer a great alternative to standard fixed-rate accounts since these plans essentially grow at the rate that tuition rises. Since college tuition has historically inflated at a rate of 4-6 percent annually, this offers a very attractive alternative to the 1-2 percent some money market and CD accounts pay. To sweeten the deal, some states even give parents a tax deduction or credit for contributing to these plans.
- Section 529 Gifts: Consider asking relatives to contribute to your child’s college fund. By redirecting their generosity into a Section 529 account, they’re giving a gift that truly keeps on giving. Many of the states that permit tax deductions for funding a college account permit a person to take the deduction even if it is not their own child. Further, the IRS allows individuals to gift certain amounts each year, which is a great way for wealthy grandparents to slowly reduce their eventual estate tax burden.
- UPromise: UPromise rewards parents and students for shopping at participating retailers. Under this free program, major retailers deposit a portion of what is spent into a college account designated for a particular child. Sweetening the deal is the fact that you can send invitations from your UPromise account for friends and family to register their credit and debit cards as well. Your child receives additional contributions every time they shop.
- Life Insurance: It is generally considered to be a bad idea for older parents to try to use a life insurance policy as a short-term savings vehicle for college tuition. If you already own a cash value or whole life insurance policy, though you can consider taking money from it or switching over to a term insurance policy to save money on premiums. Talk to a financial planner who can help decide if this makes financial sense for your family and your life insurance plan
- Get Two Extra Years: Some parents are ditching the notion that a four-year college is the best choice for a young adult. Consider sending your child to a lower-cost local community college for the first two years, while he or she continues to live at home. If your child can knock off their general education requirements while living at home, you will save a substantial amount on out-of-pocket costs. This will also give you an extra two years to save more money. As an added bonus, you can encourage your child to get a part-time job and help contribute to the cost of their degree. Few things will motivate a student to take those final two years of college seriously like the realization that it is their own money they are spending.
Parents and students can also spend a substantial portion of the pre-college years searching for scholarships that might help lower the costs even further. It’s never too late to start thinking about the best ways to pay for college. Get creative, get your student involved, and start saving!