Saving for a college education starts now. Try these tips.
Saving and investing for your child’s college education is quite literally an investment in his or her future. Even though university may be a long way off, it’s best to start saving as soon as possible. But no need to be intimidated. Try the “rule of three” college savings plan: you pay for a third from savings, a third from student loans, and a third from future income. The beauty of this approach is that you can concentrate on savings now, keeping in mind that there are other avenues to explore when the time comes. Here are some tips to get you going.
Get an early start
As with other investments, the sooner you start your child’s college fund, the more time your money has to grow. For example, if you start investing when your child is born, just $100 a month invested at 4.5% interest can increase to more than $33,500 by the time your child is 18. Also, consider putting your savings into a 529 college savings plan, which may offer a higher rate of return than the average savings account, while allowing your money to potentially grow tax-free.
Your children can help
Teach your kids about money at the same time they help save for their own college education. Open a savings account for your child and make regular deposits to demonstrate the benefit of saving. When he or she begins work part-time in high school, consider matching every deposit made to your child’s college fund (or double or triple, if possible). Learning to budget as a young adult in college, especially if your child can continue to work part-time, will go along way to developing healthy financial skills.
Target scholarships and prizes
There are a number of resources to obtain information regarding scholarships and prizes, and several compilations available. Your child’s guidance counselor or financial aid advisor can point you in the right direction. You can also search the Internet for websites that allow you to enter your profile and background and receive a list of possible funding sources that match your needs, interests and qualifications.
Look into loan options
Government education loans are made through the Federal Stafford Loan Program (www.staffordloan.com). These typically come with low fixed interest rates, and payments can be deferred until after graduation. You can also borrow through a variety of loan programs, including Unsubsidized Stafford Loans. Most programs have limits on how much you can borrow each year. To make up for any shortfall, look into the federal Parent Loans for Undergraduate Students (PLUS) program. Get more information at studentaid.ed.gov, where you can also fill out a Free Application for Federal Student Aid (FSFA) to apply for federal loans. Finally, visit bankofamerica.com/moneyskills and download the Student Financial Handbook, which has a section on saving for college.
What's next? Tips for smart money management
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