- Average tuition: $98,854
- Public in state: $41,760
- Public out of state: $107,280
- Private nonprofit: $147,520
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The cost to attend a public, in-state college increased an average of 2.3% since the 2018-2019 school year and 3.4% for a private, nonprofit college, according to the College Board’s 2019 Trends in College Pricing report. That steady increase brings the average cost of a four-year degree to $41,760 at a public college and $147,520 if you opt for private education. Student aid and scholarships can help pay college expenses, but every bit you can save helps combat student debt.
If you have kids that you plan to send to college, consider these essential steps to getting started.
To estimate how much you’ll need to save, think about how many kids you plan on sending to college, how many years of saving you have before then and how much you can afford to contribute.
Factor in costs beyond tuition, like housing, textbooks, food, extracurricular activities, tutors and transportation.
A traditional savings account is an option for growing your college fund. But more specialized products like 529 plans and Coverdell Savings accounts come with tax advantages, higher returns and savings incentives to help you save more.
Routine contributions are by far the most effective way to save for large purchases like college. If you can afford to put away $200 a month from the time your child is born, you’ll have $43,200 by the time they’re 18 — not counting any returns on your investment.
The amount you should save varies significantly depending on the degree, where you live, your budget, financial aid and other factors.
Based on four years of schooling, these are the essentials the College Board says you should budget for as of 2019:
Most students don’t end up paying the full amount, thanks to financial aid and scholarships. Students are awarded an average of $14,535 a year in grants and tax credits, which could reduce costs by $58,140 over four years.
Plan for expenses beyond the essentials that can affect how much you pay:
The amount you need to put away primarily depends on when you start saving and what type of college your child will attend. If you start contributing starting from birth, a general rule of thumb is about:
However, it’s more important to create a budget that works for your financial situation, so the ideal number could be higher or lower.
Compare accounts based on interest, monthly fees and minimum opening deposit.
A traditional savings account won’t offer the rates or compounding you’ll need to save adequately for education. College-focused accounts and plans are a more powerful way to save.
These investment accounts are designed to help you save for a beneficiary’s college expenses with high contribution limits and tax benefits.
Choose from two options:
Custodial accounts like those under the Uniform Gift to Minors Act and Uniform Transfer to Minors Act hold and protect funds until the beneficiary reaches ages 18 to 21, depending on where you live. They allow the account holder to invest the funds in various securities and offer tax advantages, making them effective college savings options.
The government issues College Savings or Federal Savings bonds as a safe investment vehicle. Purchase bonds to earn a fixed interest rate, and receive the principal amount plus interest at the date of maturity. Funds are difficult to access until maturity, which ensures the investment is used for its intended purpose.
Similar to 529 savings plans, Coverdell Education Savings Accounts are custodial accounts that allow the account holder to invest money toward future school expenses. You can invest the money in a number of securities with tax-free earnings growth and tax-free withdrawals when spent on eligible expenses. However, unlike 529 plans, Coverdell ESAs can also be used to pay for primary and secondary school.
Whole or permanent life insurance policies can protect you and your family, but they can also be used to pay for major expenses. Policies are broken down into a death benefit amount and a cash-value portion. After you’ve built up enough cash value, you can borrow from your policy. You aren’t required to repay the loan, but your death benefit may be reduced if you don’t.
Use the table to compare features of different educational savings plans, including monthly fees, guaranteed returns and penalties.
|Traditional savings accounts||529 savings accounts||UGMA and UTMAs||Savings bonds||Coverdell Education savings accounts||Whole life insurance|
|Can be invested||No||Yes||Yes||No||Yes||No|
|Contribution, age or income limits||No||No||No||No||Yes||No|
|Financial aid impact||Only if in child’s name||Yes||Yes||Only if in child’s name||Yes||No|
|Penalties||No||Only when used for ineligible expenses||Only when used for ineligible expenses||No||Only when used for ineligible expenses||No|
|Avoid tuition increases||No||Yes||No||No||No||No|
|Only for education||No||Yes||No||No||Yes||No|
Yes. Though it’s technically designed for retirement savings, you can withdraw contributions from your Roth IRA without penalties. Though you may be on the hook for taxes if the money is used for a family member’s college expenses.
Because many college savings plan include investments, consider speaking with a financial adviser or accountant for guidance on:
Even with so many options available to save for their education, most people won’t have enough to cover the full cost of college. Luckily, other options can help you fund your child’s education:
If you start early, set goals and look for areas to save, your college fund contributions could eventually have a huge impact. Compare the best student savings accounts to find a product that fits your budget and goals.
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