With tuition skyrocketing planning for the costs of a child’s education is one of the most important – and expensive – decisions families face today.
To make the financial aspects more manageable there are several things that can be done, and one of the most important aspects is knowledge and awareness.
The Bank of America informational website, www.bettermoneyhabits.com, provides practical advice and valuable information on many financial issues, including college savings. Here are the some steps to make this investment in your child’s future more governable:
Know the cost. Most families don’t know the actual cost of college, which can cause difficulties down the line. Realizing the full cost of sending your child to college is the first step to coming up with a savings plan. While grants and scholarships can greatly offset the cost, the average total cost of attending a year of college in 2015 (which includes tuition, fees, room and board and other expenses) was as follows:
One year at a two-year public college for a student who lives in the school’s district is $16,000
One year at a four-year public state university for a student who lives in-state is $23,000
One year at a four-year private non-profit university is $46,000
Net Price. While the above figures may be discouraging, please note that the net price can end up being a lot less than the total cost of attendance, especially for private four-year schools. Grants and scholarships can greatly offset these figures.
It’s never too early. Obviously the earlier you start saving, the better. If you started saving late for your child’s education, look for ways to trim your budget to free up money. Asking for college savings donations from friends and families in lieu of birthday or holiday gifts is one way to boost college savings.
Submit your FAFSA early. At the time your child completes his applications, submit a FAFSA (Free Application for Federal Student Aid). This federal form is used to figure out what your “expected family contribution” should be. That’s the amount the government considers your family is capable of paying based on your financial information. Schools use this information to determine your financial need and how much they may give you in the form of grants and other need-based financial aid. Be aware that many of these school grants are on a “first come, first serve” basis, so submit the FAFSA as soon as possible. They are usually available the January of the year your child will be attending.
Remember room and board. Tuition and fees are just part of the equation. Room and board can make up between 30-80% of the total cost of attending college. For some families, having their child live at home and commute to college is an alternative that offers big cost savings. A part-time job for the student, whether it is through a college work program or not, can also go a long way to offset the cost of living expenses.
Consider community college. A two-year college is a great way for economically challenged students to earn credits at a fraction of the cost of a four-year program. Those credits can be transferred to the four-year college later on.
Consider a 529 plan. A 529 College Savings Plan is a tax-advantaged account designed to make it easier to put away money for college. Besides its potential for tax-free growth, the plans also let you make tax-free distributions for qualified higher education expenses like tuition, room and board, books and school supplies. Keep in mind that like any investment, a 529 can make, or lose, money.
College is still the best investment for your child’s future success, but the expense can be overwhelming for some families. It’s important to keep perspective and realize that families pay for college from a variety of sources. In the 2014-15 school year, just 30 percent of tuition payments came from personal income and savings, with the rest coming from scholarships, grants and loans from government and private sources. The federal government awards about $150 billion in grants, work-study, low-interest loans and other financial aid each year. How much will you need to save? The Merrill Edge college planning calculator will give you a good estimate of the total cost.
With forethought, planning, and resourcefulness, you can help your child finance a college education. It is one investment that will pay dividends for a lifetime.