For those of you who are parents, it’s understandable that you want to help your child avoid the plague of student loan debt, but there’s a right way to go about doing it and a wrong way.
The wrong way is to completely sacrifice your financial future, forgoing retirement savings and just “hoping for the best” when you’re in your Golden Years. The right way is to approach college with some smart financial planning. Take these following tips to reduce the student loan burden that you — and your kid —will face later in life.
Tip #1: Save for college as early as possible
You already know how expensive college is right now. But what about the future? Well: the annual price tag for a public school is estimated to swell to more than $35,000 in the year 2017, and an incredible $86,000 for an Ivy League school. Unfortunately, 31% of parents who plan to help pay for college haven’t started saving yet. Start socking away as much as you can now to decrease the need for loans in the future.
Tip #2: Open a 529 Plan
A 529 college savings plan is the best thing going when it comes to saving for your child’s college education. Available in every state in the country, a 529 plan is portable and can be used at any qualifying institution of higher learning in America. It’s a great way to sock away tens of thousands of dollars annually for higher educational expenses because money in a 529 plan grows tax-free if it’s used for college costs.
Many states even give you a tax-deduction for contributing to a 529.
Best of all: these plans are maintained in your (or the donor’s) name, so they don’t reduce your child’s chances for receiving financial aid. For more info on 529 plans, visit http://www.savingforcollege.com.
Tip #3: Plan for some aid
Unless you can truly afford it without changing your whole lifestyle, strike a balance between trying to fund your kids’’ college account, and planning to get some need based aid. There’s no rule that says you have to foot your son or daughter’s entire college tuition bills, plus pay for all his or her living expenses and other needs.
Apply for aid, but don’t over-estimate how much your child will get. Although 72% of parents think their kids could get merit aid, the reality is that only 28% of students currently do. Your child’s financial aid package will be based on your income and assets, the cost of the school, and whether you have other children in college.
Take your entire situation into account when you’re thinking about aid. Do you have more kids or other family members who will need money for school or other reasons? Also be mindful of your own income picture — not to mention rising healthcare costs, current bills, and the need to save for your own retirement.