Understand Your Finances
How will today’s kids afford college?
College costs are a daunting topic. In the 2016-2017 school year, the average tuition, fees, room and board for a four-year in-state public university were $20,090, according to the College Board. A private, four-year nonprofit cost more than double that ($45,370.) And tuition is increasing between 3.5 percent and 5 percent each year.
If the trend continues, college costs for the class of 2029 will be quite high. "If we look 12 years into the future, we're probably talking about a cost for a year of college at the most expensive college of $100,000," says Mark Kantrowitz, publisher and vice president of strategy for college search and scholarship site Cappex.com. "That's kind of mind-boggling."
Thankfully, it's not impossible to pay for your child's education. Here are six strategies to keep in mind, but be sure to contact your financial advisor for your specific needs.
Begin saving today
You've heard this before, but it's incredibly important. The sooner you start saving, the better. "If you start saving from birth in a 529 plan, and you use an age-based allocation, about a third of your college savings goal will come from the earnings alone," Kantrowitz says. "If you wait until the child enters high school to start saving, it's less than 10 percent. One of your greatest assets is time."
You can generally open a 529 account with as little as $25. While you're saving with after-tax money, whatever you earn on your investments is tax-free if you use the money for higher education expenses. Plus, in many states you get a tax break for contributing.
Every dollar you save is worth about two dollars you don't have to pay back in loans. "If you were to save $200 a month at 6.8 percent interest for 10 years, you'd accumulate $34,400," Kantrowitz says. "If, instead of saving that money, you were to borrow at 6.8 percent interest and pay it back over 10 years, you'd be paying $396 a month. That's almost twice as much."
Break the projected college costs it into thirds
One method of tackling this big number is to aim to save a third, pay a third out of pocket while your child is in school, and cover the remaining third with loans. Use the World's Simplest College Calculator at SavingForCollege.com to find the estimated cost of college for your child, then target 33 percent of the total. The calculator will even tell you how much you need to save each month.
Ask for help
Nix the elaborate holiday and birthday gifts, and tell family you'd appreciate donations to your child's 529 fund. Many people will be happy they can give something concrete, and you won't have to wade through as many outgrown toys each year.
Sign up for cash-back shopping portals
Free money is nice, right? Create accounts on sites like Upromise.com and Ebates.com, and use their shopping portals to make your online purchases.
"Eligible purchases qualify for cash back," says Alina Parizianu, a certified financial planner in Great Neck, New York. On Upromise, shopping through the site's portal results in a percentage of your purchases being deposited into a 529 account directly. Using Ebates' shopping portal results in periodic checks, which you can deposit into college savings plans.
Do you get bonus checks during the year? Or a tax refund? Maybe there's an inheritance coming your way? Whenever you receive money that isn't part of your normal budget, consider saving part or all of it for college.
Invest in index funds
Socking money into a 529 or a Roth IRA (which you can use for educational expenses) allows you to invest your savings for more growth, and index funds are a good choice.
Index funds are mutual funds that are designed to match the performance of a market index, such as the Standard & Poor's 500 Index (S&P 500). It gives parents an easy way to diversify.
The class of 2029 has 12 years of investing on the horizon, plus four years of college. That's plenty of time to squeeze some earnings out of the stock market.
Kate Ashford is a Chase News contributor. She has written for the BBC, Forbes and Money.