Although college is an absolute necessity for the majority of careers these days, financial aid and tuition costs don’t exactly make things easy. It’s hard enough to send one kid to college, let alone several. But there doesn’t seem to be much help on the horizon. The federal government continues to cut educational funding, thanks to a rising federal deficit and a number of other concerns that have been given priority. That means there are fewer grants and scholarships than in previous years, while private and public institutions continue to raise tuition prices in order to make up the funding gap. That’s a real recipe for disaster for American families, leaving many students in the unenviable position of graduating college with tens of thousands of dollars in student loan debt hanging over their shoulders. As a parent, you want to do whatever you can to make sure they get to go to school, but you can bankrupt the family in the process. Here are five tips to help you build a college fund for your kids, so when the time comes you’ll be ready to step up to the plate.
The most important thing you can do is to start early. When your child is born you’ve probably got a ton of other concerns on your mind. College seems awfully far away when you’re buying strollers and box after box of diapers. But those years will pass quickly, and since interest compounds anything you put aside, the sooner you start saving the better. Create a college account for your child when they’re young, even if you only contribute a few dollars each week. You can adjust your savings amount and strategy as they get older, and you’ll have a lot of capital to work with at that point.
Although it could be difficult at first, try to automate your savings. The best option is to create an automatic transfer that moves money from your checking account into the college fund each week. If you’re concerned about affording it, only do as much as you can. That could be as little as $25 a week, but if you started early that will make a real difference over time. Talk to your employer as well. You might be able to have money taken directly from your paycheck for savings account deposit, which will actually cut down on your tax bill as well.
Keep in mind that you can share the burden too. If you’ve got that savings account open, encourage family and friends to contribute to that instead of buying gifts for holidays and special events. Kids often get more toys than they know what to do with, causing clutter and an unnecessary waste of natural resources. Request contributions to the college fund instead, and you’ll be surprised how generous people will be. After all, would you rather buy your nephew or grandson yet another toy that will be forgotten in a month, or help them afford to go to whatever college they want to attend?
As the account balance increases, look for ways to speed up the interest accrual. There are investment tools specifically created as college funds. One great option is the 529 plan, which comes with a high interest rate and tax exempt status, as long as you don’t withdraw the money early and the majority of the funds are used for education. Also consider CDs, money market accounts and stocks, as long as you are savvy enough to manage that without fear of losing too much capital.
Finally, use this opportunity to improve your financial outlook. If you focus your efforts on getting the family out of debt, you’ll obviously have far more money you can save for your child’s education. UF’s urban planning program isn’t cheap, but it will give your child the chance to excel in a long and lucrative career. If you can kill off your debt, you can continue to save up for programs like this, without concern that you’ll ever need to dip into that account.