The cost of higher education has been skyrocketing since the 1980s and shows no signs of slowing down. Since 1989, the average cost of attending college has quadrupled, and this price increase has only accelerated in recent years. Today, a four-year degree costs 25% more than it did ten years ago alone. While there’s no doubt a college degree is a wise investment—with college graduates earning 80% more than high school graduates—wages have flattened, leaving many to wonder how they’ll pay back steep school loans.
Many parents have begun a higher education fund for little ones to outweigh the rising cost of tuition. However, if you find yourself sans-savings as your child nears college age, there’s still hope. With detailed planning and thoughtful strategizing, you can finance your child’s time at university without overwhelming amounts of debt.
Encourage your child to apply for scholarships
One of the most straightforward ways of financing a college education is through scholarships. Unlike loans, scholarships don’t need to be repaid, making them an excellent option for lightening your financial load. If your child lacks the motivation to search for scholarships, it might be because they don’t fully understand the implications of financing a college education. Sitting down with your high-schooler and explaining how student loans work can help them realize how vital scholarships can be to funding their college education.
There are a plethora of scholarships available for students of all backgrounds, both merit-based and otherwise. However, searching for eligible scholarships can be overwhelming without the help of a scholarship finder. By inputting necessary identifying information, you can weed out scholarships your child isn’t suitable for, and you’ll avoid wasting time on unnecessary applications.
Open a 529 savings plan
When you’re saving up for your child’s tuition, opening a 529 plan can be an excellent method of financing their education while taking advantage of tax benefits along the way. There are two types of 529 plans to choose between: College savings or prepaid tuition plans.
With a college savings plan, your account’s value depends on the performance of the investment portfolio you selected. While this is a riskier option and can require actively managing your investments, it does provide more potential return during college.
The latter plan allows you to pre-pay part or all of the cost of in-state public university education. Should your child decide to go to an out-of-state college or a private institution, you can convert this 529 plan to accommodate changes. You can invest in almost any state’s 529 plan to pay for college at more than 6,000 U.S. college institutions and over 400 foreign universities.
Use the one-third rule
Exclusively using your savings to pay for your child’s college education is a tall order, even for families who started early. With the one-third rule, you don’t have to worry about relying exclusively on savings to pay your child’s tuition. The one-third precept states the total cost of your child’s education should incorporate one-third savings, one-third current income, and one-third student loans. This rule allows you to allocate funds without draining one account.
The earlier you save, the better, and saving even more than one-third is ideal. However, even with this rule, you may still end up taking out student loans, but the amount will be substantially less than if you relied heavily on financial aid.
Involve your child
Many colleges award scholarship money to high-performing students. Even if your child’s GPA isn’t stellar, schools also use standardized test scores to grant money. Working with your child to prepare for the SAT and ACT can pay off financially if they ace their tests.
Another way for your child to contribute to their college fund is by getting a job if they’re of age. In addition to learning responsibility and having a bit of extra spending money, you can use your child’s new part-time gig as an opportunity to teach them the importance of saving money.
Plan for more than tuition
Unfortunately, tuition isn’t the only thing you’ll have to pay for when your child enters college. Every semester, your child will need to purchase textbooks for class and pay various university fees. Additionally, prepare to allocate a large portion of your budget to room and board. If they choose to live off-campus, your child will likely need to pay rent and buy groceries. On-campus housing situations may be cheaper, but be wary of small dorm rooms and sub-par food plans.
Paying for your child’s college education isn’t about paying exclusively for their education. It’s essential to account for the living and learning expenses that tuition and course fees don’t include.
The bottom line
Student loan horror stories and reports of the ever-rising costs of college are disheartening to hear as you plan your child’s college departure. The prospect of paying for an expensive educational experience may feel impossible to manage. However, with careful planning and saving, you can offer aid and support, allowing them to focus on their studies and experience college life.
