You’ve just had a baby and everyone knows higher education can be very expensive, so when is the best time to start saving for your child’s education?
We spoke with Tracy Martin Turgeon of The Children’s Workshop for the following guidelines when it comes to saving and preparing for that education.
The goal is to start planning for college as soon as your child is born. Not many parents or guardians do this. Any time you start is still a good time. According to the 2016 College Board, instate tuition for a four year college is around $9,500 per year. Room and board require another $10,000 – close to $20,000 for one year. If your child chooses an out of state facility, that is roughly around $35,000, depending upon which they choose. If you put your baby shower money or birthday money away into a college fund, at 8% return you could end up with enough saved for your child’s first year. That is only around $5,000 and it turns it into $20,000.
Over the past couple of decades, tuition for college has trippled from 1986 and doubled again since 2006. The longer you put off saving, the bigger the challenge will become as tuition grows at rapid rates. Don’t wait – you can start with as little as $100 and add each month. If you cannot save enough for your child’s full four years, a little bit is better than not saving at all. You can try to do this with just opening a college fund, or speak with a financial advisor. The one thing you do not want to do is sit around and not save or put any money aside. Ask family members to give money toward a college fund instead of buying a bunch of gifts for your child’s birthday. This way, it does not all rest on your shoulders and will help grow their fund larger. Every parent hopes that their child will go off to college. Then, life happens and saving gets pushed to the bottom of the priority list. By making it a point to put just a little bit away from the beginning, just like you pay your bills, it will become a natural and automatic thing to do.
Mistakes that parents make and what they should stay away from:
- Some parents will rely on borrowing from their 401k to allow enough financial stability for their child to go to college. This is a big mistake. If you were to get laid off, or even fired, you may be required to pay back all the money quicker than you planned on, putting you and your family in a difficult financial situation. This “no no” is right up there next to taking out a second mortgage on your home. These are areas you want to stay clear of, you do not want to put yourself in debt and struggle. Saving money throughout your child’s life will help diminish the chances of you having to resort to these.
- Waiting to save for your child’s college fund is another mistake parents make. Open a 529 plan that will give you tax credits. Research states that most parents are not saving for their child’s education. When you do just a little bit at a time, it makes a huge impact. Time flies and before you know it, your child will be looking at colleges and they will have no money to stand on.
- Once you open a 529 college fund, don’t close it right when your child starts college. Instead, keep it open so you can still get the tax credits and save. Most students do not get a free ride to college, even if they are a straight A student and an awesome athlete. The chances are slim, so plan for the worst case situation and be prepared. If your child does get a full ride to a school of their choice, you will have that savings to give to them as a graduation gift down the road, or they can use a little of it each year for spending money while at school.
- Another mistake parents make is co-signing for your child’s college loan. Many parents will find themselves in debt. There is no forgiveness if your child chooses not to pay their loan or defaults on their loan. This debt automatically becomes your debt and may hurt your credit and un-stabilizing your financial future. It is human nature to want to help your child as much as you can, but they also need to develop financial responsibility. Relying on their parents as a financial crutch can be just as damaging as not having any money.
When to start preparing for your child’s journey to college:
- Many parents will start looking into college when their child is about to enter 11th gradeyou’re your child is an athlete, that search may start sooner, as they will have to commit early on in their senior year. Though the college search doesn’t start until the later high school years, that doesn’t necessarily mean “college talk” shouldn’t start earlier with your child. Students who develop good study skills early on will be more prepared in high school where their GPA counts. When children enjoy school and get involved in extra-curricular activities, they will have better academic success and be more passionate about carrying those habits on throughout college.
- Be involved in your child’s school and know what classes your child is taking. Being involved in their education and wanting to know their grades does not make you a “helicopter parent.” It shows that you are enthusiastic about your child’s success and that you are involved every step of the way. Don’t assume that someone will contact you and tell how your child is doing in school. Freshmen grades are just as important as senior year, so be sure to keep open lines of communication with your child about their education.
- Tenth grade – You should begin discussing college with your child. Attend college events and college fairs and ask questions. You can even start touring schools! Touring schools online will give your child a good idea on which schools they would like to apply for and it will give them goals to reach.
- Eleventh grade – Your child should sign up for ACT or SATs in the spring. You should also plan to visit colleges. Start to check scholarships and what is available. Continue to stay on top of your child and their grades. They can easily fall behind and that will hurt them in the long run, preventing them from getting into the college that they want to get into.
- Twelfth grade – Apply for financial aid and figure out how much money you have saved. Try to continue to look at colleges and narrow down which ones your child likes most. Also, find out if they are giving any scholarships. The last step is to prepare for graduation, sit back, and enjoy your child’s journey onto college!
It cannot be stressed enough – Prepare, Prepare , Prepare. If you haven’t started saving for your child’s college education, start now!
Resources: Sak Community College, Parents, Investment groups.