ways to make college saving a cinch
The only thing more daunting than the college admissions process is the college tuition process.
|5 steps to save
Parents with students just now
entering higher ed can expect to fork over
an average of $25,911 for a public college
or university or a daunting $98,646 for private
institutions over four years in tuition and
tuition inflation alone. Those with younger
students have it even worse with tuition as
both public and private institutions are expected
to more than double in the next 10 years.
According to a survey by AllianceBernstein Investments
Inc., parents are anything but financially
prepared to foot those hefty tuition bills.
The study reports that the average amount
families save for college will cover only
23 percent of their child's undergraduate
bills, leaving thousands to be covered by
scholarships and grants that may or may not
come through. The solution, experts say, is
to save smart, save soon and save often.
Winning the war against college costs isn't
as simple as stockpiling cash, says Eric Cramer,
a vice president financial consultant with
Charles Schwab. "There are a lot of parents
who shouldn't be putting money away for college
right now," he says. "Parents in
the beginning of their earning potential might
have a home equity line of credit, a car loan,
credit card debt. Saving for college may not
be right until they have some financial wherewithal."
Before starting a college savings plan, Cramer advises parents to first pay off any lingering debt, including car loans, old student loans and personal loans, then to save up a financial nest egg equivalent to at least six month's worth of rent or mortgage payments just in case of disaster.
When choosing which debt to eliminate first, credit cards are a great place to start. According to Sallie Mae, credit card interest rates average at 13 percent -- nearly twice the interest rate for a federal Stafford student loan -- and can run as high as 30 percent. Eliminating credit card debt early can save you a significant chunk of change that can later be put toward a child's higher-ed fund.
In today's world of tax-advantaged college savings plans, stashing your cash in a plain-Jane savings account is like using an abacus to do your taxes. Thanks to 529 prepaid and college savings plans, parents can save for school without paying any federal income tax on their savings and, if they choose a state-sponsored plan, often without paying state income taxes on the funds either.
The secret to making these plans as lucrative as possible, says Cramer, is to maximize your contributions early on, giving your money ample time to grow before your child applies for college.