How Much To Save For College Each Month
Figuring out how much to save for college is difficult. The costs can vary widely depending on whether a student goes to a public or private university, the amount of financial aid awarded and the cost of living in the area around the school.
Still, calculating the cost of an education is important to determine how much youll need to pay for college, Hayes says. Then you need to determine if you will pay for the whole thing or just a portion of college expenses. This will be helpful in determining how much money you should invest each month in a qualified college savings plan like a 529.
Though you cant control all of your childrens choices, one way to make costs more predictable or keep them low is to encourage them to look for scholarship opportunities or ways to live within a budget.
Amanda Clayton, a personal finance blogger, has experience with attending college in a high-cost area. From personal experience, most of the student loans Im still paying back 10 years later werent due to tuition and fees as much as they were related to lifestyle. I was a first-gen college kid and had no idea how to budget for living expenses, she says.
Get Your Rent Payments To Boost Your Credit Score
This is one thing that will save you money down the road, not immediately. But one of the keys to saving money on loans, getting a good rent, and more is having a great credit score.
Using a service like Rent Track can enable your rent payments to count on your credit report, thereby boosting your score if you make all your payments on time.
The end goal is to have a great credit score when you leave college so that you can save money in the future.
Qualified United States Savings Bonds
People have been using U.S. Savings Bonds as a way of saving money for a long time. The first savings bond was offered in 1935 to encourage people to save money during the Great Depression. Today, U.S. Savings Bonds are a trusted, affordable, and reliable way for families to save for all sorts of things.
One advantage of a savings bond is that you cannot lose the money on your principal investment. If you purchased a savings bond for $100, you can count on it being worth at least $100 by the time you cash it out. While savings bonds can be a safe way to save money for college or give as a gift, it can also feel complicated to withdraw that money for college when the time comes. Thats why many people elect to roll their savings bonds into a 529 plan before college. This way, they can ensure that their savings bond wont be taxed.
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Test Out Of Some Of Your Classes
Consider testing out of college classes. Students can reduce the number of classes they take in college with Advanced Placement test scores.
AP classes are taken during high school. When you pass the test associated with the class, some schools will allow you to skip some general education courses, allowing you to get through college faster.
In addition to AP tests, you can also take advantage of the College Level Examination Program via the College Board website.
More than 2,900 public colleges and universities in the United States will give students credit for what they already know if they pass a CLEP test, said Steve Klinsky, the founder of Modern States Education Alliance, a philanthropic organization dedicated to making a college degree more affordable.
According to Klinsky, Modern States offers tuition-free courses that can help you pass a CLEP test. The organizations first initiative is to help students earn a full year of college credits without the cost of tuition or books.
Whats The Best Way To Invest Money For A Child
The good thing about putting away money for your children is that there is no one right way to do it. You can open a 529 plan for your child early on or later as they get closer to college aid. Or, you can fund a brokerage account so youre not held to stricter rules about how the moneys spent.
Of course, you can invest your money in a few different ways some combination of a 529 plan Roth IRA or, UGMA, UTMA, brokerage or savings accounts so you have options.
Consider meeting with a financial expert to help you craft a plan thats best for you.
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How To Pay For College Using Multiple Strategies
You might have asked teachers, counselors and admissions officers about how to pay for college only to get a different answer each time. Thats partly because there are a lot of different answers.
And chances are, with the rising cost of college, youll need to use more than one tactic to pay for school. Many students fund their undergraduate education by attending low-cost schools and finding scholarships, federal and private student loans and part-time work.
Ensure you make the right school choice, tap savings and seek out gift aid before all else. Then try to cut expenses and ramp up income before you resort to borrowing. Work your way down our list of 16 strategies, ensuring that you combine the best of each of them before taking on debt.
Andrew Pentis and Christina Majaski contributed to this report.
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A Practical Guide: The 5 Best Ways To Save For College
So you want to be proactive and save for college. Maybe youre a high school student who wants to build up a college fund for yourself, or maybe youre a parent or family member who wants to save for a young loved one. No matter your situation, youre taking a proactive step in making college a little bit more affordable.
In this post, Ill discuss the things you need to know in order to build, keep, and grow college savings. We’ll discuss the five best ways to save for college to lower student debt on graduation and take a load off your mind.
First, though, I’ll talk about the question you should be considering before you implement your savings plan: how much should you be putting away in the first place? Read on to find out!
Choose A Savings Plan
There are a ton of savings plans to choose from, and its important to understand the implications of each, and what it can mean for your childs future.
When thinking about how much to contribute to whatever plan you choose, review your cash flow to determine how much you can realistically dedicate to college savings while not disrupting your current lifestyle or saving for other goals, says AnnaMarie Mock, a wealth advisor at HIGHLAND Financial Advisors in Wayne, New Jersey.
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How Much Should A Parent Save For Their Childs College Education
The first step should be to assess how much of your childs education you actually want to cover. Do you want to pay for all of it? Do you want to split it with your child? Is there a dollar amount youll cover, such as the tuition at a local state university, with your child having to cover the rest? There is no right answer. It comes down to what you value. Some parents want their children to understand that their education isnt free that it has a real cost. Other parents want their children to not have to experience any financial burdens after graduation. What matters is what you value. Give this question careful consideration as early as possible.
The single most important faction, no matter how you save, is that you start as early as possible. Start saving for college when your child is an infant, if possible. If your child is already past infancy, start immediately by saving something, no matter how small you can adjust your savings amount later.
Why is this so important? The earlier you begin to save, the more time your savings will have to grow and thus, the less youll actually have to contribute overall to reach your goal.
Student Loans 101
Can I Lose Money From A 529 College Savings Plan
If you want to help your children pay for college, its important to start saving when theyre young. But no matter how much you set aside, theres always the risk that your 529 education savings plan could lose money, if
Although you can take your money out of a 529 education savings plan for any reason, if you withdraw the money for anything but an approved education expense, you may be required to pay state and federal income taxes plus a 10% federal tax penalty on any gains.
You could also lose money from your 529 education savings plan if the market declines, because its an investment account whose value can fluctuate. Your 529 is not guaranteed by state government and may not be guaranteed by the federal government, though investments in some principal-protected bank products may be insured by the FDIC.
As with most investments, investments in education savings plans may not make any money and could lose some or all of the money invested, according to the Securities and Exchange Commission.
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Cut Down On Senior Year Expenses
Senior portraits, prom, graduation parties, and senior class trips are all moments that are fun and really important in a high school senior’s lifebut they can definitely do some damage to your budget and take away from college savings. Shymika Stephenson-Davison, college readiness coach at Precollege Solutions, says that families can spend anywhere between $1,000 and $5,000 on senior year celebrations.
Consider having your teen rent their prom outfits, or opt for a budget-friendly graduation party at home, so you can still celebrate those special senior year moments while saving most of your money for college.
Coverdell Education Savings Account
Coverdell Education accounts allow you to save $2,000 after-tax money per child for college. Contributions must be made before the child turns 18.
Anyone can contribute to a Coverdell account as long as the total contributions for the child dont exceed $2,000 annually. The money grows tax free and distributions are tax free as long as they are used for education purposes.
However, all funds must be used by age 30 or tax penalties could apply. If the funds cant or wont be used by age 30, you do have options to roll them over to another beneficiary.
Also, there are income limits for contributing to a Coverdell account. As of 2020, the income limits to contribute to a Coverdell account were $110,000 for single filers and $220,000 for joint filers.
The financial aid impact of a Coverdell account depends on the ownership and tax dependency status of the student. Anyone can open a Coverdell account for a college-bound student.
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How To Earn During College Years
You have a number of opportunities available at your hand to earn some cash while you are still a student. Look around for a lucrative job in college. As an instance, you may help your seniors or juniors to write their notes or sketch up their practical science books. Alternatively, start teaching your juniors a subject that you master. Even helping your professors in research work may help you to earn something. Helping your college librarian or laboratory attendant are also good options to earn something.
Apply For State Grants
While scholarships are usually merit-based, grants are typically awarded based on your financial need. If your family income isnt especially high, consider state grants for college.
In Indiana, for example, there are grant programs available for:
- Undergraduates with financial need
- Adults returning to school
- For attending trade schools
Like scholarships, grants are a form of gift aid that almost always doesnt need to be repaid. You should always prioritize this type of cash for college over other options, especially student loans.
You can learn about grants available in your state by contacting its higher education authority via the Department of Education. Here are some opportunities organized by situation:
|Read up on grants for|
|Paying off student loans|
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How To Save For College
There are almost as many types of accounts to help save for college as there are types of colleges to save for. Which account is best depends largely on a savers financial situation, how much they want to save, and how much theyre able to save.
Here are some of the most common and effective ways to save for college.
Uniform Transfer To Minors Account
Theres also whats known as a UTMA, or a Uniform Transfer to Minors Account.
Parents designate a beneficiary for the fund who cant be changed and once the beneficiary reaches age 18, the account is transferred over to him.
The money is then able to be spent any way he wishes. The first $1,000 saved is tax-free, additional funds are then taxed at the childs or the parents income tax level.
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Snoring at night, tired all day? These are just a few common symptoms of sleep apnea, and heres a guide for what you can do if you think you have the condition.
Looking for a way to lower your stress levels? Yoga has been proven to help reduce stress. Whether you are at home, work or somewhere in between, yoga is always here to help you relax.
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Invest In A Mutual Fund
Mutual funds are a good way to invest for long-term savings, and there is no limit to how much can be saved. With thousands of funds available, there are also a lot of options and chances for good return on investment. That said, they come with more cost than some education-specific savings plans do.
Pros of using mutual funds:
- The money is not restricted and can be spent wherever its needed.
- Theres no limit to how much can be invested, and no restrictions on when it can be withdrawn.
- There are more than 10,000 mutual funds available, so finding an option with a high return is good.
Cons of using mutual funds:
- Earnings are subject to annual income taxes.
- Capital gains are taxed when shares are sold.
- If owned by a parent, theyll reduce financial aid eligibility by up to 5.64% of the account value, which grows to 20% if owned by the student.
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Attend Free Events On Campus
There’s a lot of events going on campus at any given time. We already talked about free events with food, but there are plenty of other entertainment events that could keep you from getting bored.
Most campuses have live music, concerts, shows, sports, and lectures that could all be free and entertaining. The hard part is, it can be tough to know when things are going on.
Make sure you’re always looking at your Associated Students calendar to find fun events, and check out flyers around campus to see if anything is going on.
Education Savings Account Or Education Ira
An ESA works a lot like a Roth IRA, except that its for education expenses. It allows you to invest up to $2,000 per year, per child. Plus, it grows tax-free! If you put away $2,000 a year starting when your child is born, by the time they turn 18, you would have invested $36,000. Its hard to say exactly what the rate of growth is with an ESA because it varies based on the investments in the account. But at the average stock rate of 12%, that $36,000 would grow to around $126,000 by the time the child starts school. Congratulations, you more than tripled your investment, and now Junior doesnt have to worry about paying for tuition!
We like the ESA account because its likely a much higher rate of return than youd get in a regular savings accountand you wont have to pay taxes when you withdraw the money to pay for education expenses. An ESA isnt just for college tuition either. It can be used for K-12 private school tuition, vocational school or things like textbooks, school supplies or tutoring If your child doesnt end up needing it, you can transfer the money to a sibling for their school.
Why We Like It:
- Higher rate of return than a regular savings account
Why We Dont:
- Contributions are limited to $2,000 per year
- You must be within the income limit to qualify
- The amount must be used by the beneficiary by age 30
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