What’s the Best Way to Save for College?
Start saving early
Ideally, you’d start a college savings account as soon as your child is born, to take advantage of compound interest and a longer lead time. But don’t panic if you’re a few years behind; it’s never the wrong time to start a savings account for college!
How much should I save?
Experts recommend a savings plan for a child’s education that covers 1/3 of college costs through savings, 1/3 from current income and 1/3 through loans. Since all colleges have different costs, it can be tricky to determine exactly how much you need to put away. A good rule of thumb is to save $250 per month for an in-state public college education, $400 per month for an out-of-state public college, and $500 per month for a private, non-profit school. (All of these figures are based on a child education savings plan that starts when your child is born.) To boost your savings, divert half of any yearly bonuses or other windfalls you may get into your college savings account.
What if I have other debt? What’s more important: retirement or college savings?
You should always prioritize your own retirement savings over any college savings. Your kids can always take out a loan for school, but you cannot take out a loan for retirement. Also, before focusing on your college fund account, make sure you have an emergency savings fund with 3-6 months’ expenses. If you have credit card debt, pay that off first, too.
Where should I save money for college?
The easiest and best way to save for college is to automate your savings. Consider an automatic monthly savings program like Pay Yourself First from Liberty Bank. Another common school savings plan is a ROTH IRA. One key perk of this type of school savings account is that you are not obligated to use the funds for education. If your child decides not to go to college or earns enough scholarship or grant money to cover tuition in full, you can use your ROTH IRA funds for something else.
What if I can’t save enough to contribute to my child’s education?
If saving money for college is impossible, you can still help your children succeed. Make sure your child understands that you can’t help them financially. The earlier your child hears this message, the more time he or she will have to investigate other options. Motivate your kids to get excellent grades, which will help them qualify for scholarships. Help them weigh their options when it comes to choosing a college by calculating the financial impact of each decision based on the available loans, scholarships and grants from each school. If your child is able to work, encourage him or her to set aside cash for college. Help them set up a savings account for college; the best school savings account for kids will have no fees and will be tailored for students. Liberty Bank’s All-Stars Youth Savings Account offers a competitive compound interest rate, plus rewards kids with $5 for every report card with an “A” – giving kids even more motivation to get those good grades.
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