No matter which college your child chooses, higher education comes with a price tag. The average annual tuition at a four-year college ranges from around $10,000 for an in-state public school to about $36,000 for a private institution.1 It’s never too early — or too late, for that matter — to start strategically saving for your child’s education. Here are four things to consider to help offset the cost of college and ensure that your long-term financial goals stay on track.
1. Apply for scholarships and grants
Scholarships and grants can go a long way towards reducing the tuition burden for parents. The secret is to begin this process sooner than you think. Help your child search and apply for scholarships as early as their freshman year of high school so they can get a head start.2
Another tip is to look for local or niche scholarships.3 These are often very specific (for students from a particular state or town, or of a specific ethnicity, for instance). There are several websites that allow you to browse through scholarship resources by state, race, gender and much more. If you can find one your child qualifies for, they’re usually much less competitive than national scholarships.
As for grants, there are so many different kinds: need- and merit-based, state-sponsored and more.4 Help your child start their search based on their academic interests and consult their guidance counselor for help determining what grants they might qualify for.
2. Explore tax-advantaged savings solutions
One great way to save for college is by opening a 529 college savings plan account, specifically set up to help you save and invest money for educational expenses. A 529 has a lot of advantages, one being that family members and friends can contribute to this account at any time5 – it’s a great suggestion for when people need birthday present ideas. Money in a 529 plan, used for educational purposes, is exempt from federal taxes.6 Many states also offer a full or partial tax deductions or credit for your contributions.
Another option is a Coverdell Education Savings Account, which allows you to put away up to $2,000 per year for children 18 or younger subject to IRS eligibility limits.7 This money can be withdrawn without being taxed and can be used for education expenses outside of college, such as private school tuition. An added bonus here: these accounts can be transferred to a relative of the recipient under 308 without triggering tax or penalty.
Finally, you might consider opening a Roth IRA for your child as well. Traditionally, these are used for retirement planning, but among their pros are that you can withdraw the money you’ve contributed with no penalties9, whenever you choose.10 Unlike 529 plans, funds in a Roth IRA are not restricted to qualified educational expenses, which gives you more flexibility. You could even store some college savings in your own Roth IRA account — that way, if you end up not needing it for your child or having some left over, you can redirect the money towards retirement.11
3. Prioritize in-state colleges
Tuition at a private college can cost over two-thirds more than at an in-state public college12, so considering a local option is a no-brainer. Fewer students at public universities take out loans than those at private colleges13, meaning they graduate with less debt.
Another tip to consider: Some programs allow out-of-state residents to actually pay in-state tuition if they’re from the same region.14 In addition, others make exceptions and waive residency requirements for kids with parents who are police officers, teachers or military service members.15
4. Explore dual-enrollment and AP classes
As college tuition is typically calculated per year, graduating early can translate to serious savings. Dual enrollment allows students to take classes for high school and college credit at the same time.16 Similarly, students who earn a 4 or 5 on AP exams, and in some cases even a 3, can earn college credit automatically.17 Taking this approach could mean cutting the time spent in college in half, or at least down to three years rather than four, enabling you to save big-time on tuition and fees.18
While paying for college can feel like a sizeable undertaking, there are many tools and strategies that help make it achievable. With some research and careful planning, you can give your kids a great college experience while safeguarding your long-term financial health.
For further tips and guidance about developing an educational savings plan, be sure to speak to one of our expert financial advisors.
This material does not constitute tax, legal, or accounting advice, is for informational purposes only and is not meant as investment advice. Please consult your tax or financial advisor before making any investment decisions.