Updated: Feb 20, 2020
I’ve made it pretty clear in my blog series for young adults that I think student loans are a potentially dangerous threat to a young person’s finances. When student loans and credit cards get out of control, many young people get buried and simply don’t know where to turn. If they put a debt snowball or other payoff plan in place, they can usually resolve their problems, but it could take years and involve a lot of sacrifice and stress. The best thing, in my opinion, is to avoid student loans altogether. That can be tough to do when education experiences inflation at four times the rate of anything else! That means paying for college outright isn’t an option for a lot of families. However, the more you can put toward costs now rather than taking out loans later puts you that much more ahead of the game. Interested in some tips on how you can best plan for your kids’ college expenses? Here’s my advice.
Decide if It’s Really Worth It
Yep, you read that right. Sometimes, college isn’t really worth it. How many people do you know who actually utilize their college degree in their careers? Many kids go to college simply because that’s what their friends are doing and that’s what their parents expect them to do. Peer pressure and society lead them to an enormously expensive endeavor when they may not even need or want it. A lot of kids would be better off going to trade schools to explore careers that are more interesting (and maybe even more lucrative) to them or simply working in a number of jobs to get experience and see what their passions are. The discussion about whether college is really the best option should be a dialogue between you and your kids, but it should ultimately be their decision.
So you’ve decided college is the way to go! It’s imperative that your next step is to start saving. The longer you can harness the power of compound interest, the better your college saving situation will be. If you really think your newborn is headed for the ivy leagues, start saving as soon as he or she is born! If you decide later that the plan has changed, you can always use that money for something else. It’s never a bad idea to start saving for college as soon as possible. You’ll thank yourself later.
Take Advantage of Tax-Free Accounts
One of the great things about saving for college is that you can take advantage of college savings plans. 529s and Coverdale ESAs allow you to put money into accounts tax-free. And, if you use the money for qualified college expenses, they aren’t taxed when removed, either. These are the only investment accounts that are never taxed, so you need to use them. Again, the sooner you can start contributing to these, the better.
Get the Child Involved
Getting your child involved in the saving process is beneficial on many levels. It teaches them responsibility, it takes some of the burden off you, and it will get them emotionally invested in the actual process of attending college. When kids are young, you can help them set aside birthday or allowance money to put into savings for college. As they get older, they can get part-time jobs and use some of that income to beef up savings. And there’s nothing to say your kids can’t work while they’re in college, too. There’s noting wrong with taking fewer college courses and working full or part-time to help pay for expenses. It builds character, teaches responsibility, and will help them transition to the working world when they graduate.
College isn’t right for everyone, but if you and your child decide that they want to go this route, it’s imperative you start planning early. By using the tips above, you can help your child avoid massive debt and jumpstart their future.
Have questions about saving for college? Please leave it below!