Taking Steps Now to Pay for College

By Jessi Fearon

The average college graduates student loan debt is $37,172. It will take the average person ten years to repay this debt an entire decade! At this rate, many college graduates will barely have their student loans paid off before their own children start college.

When money is tight, saving for college can be a challenge. However, completing college debt-free is possible. The following strategies will help families prepare their finances so that paying for college without going broke can become a reality.

Avoid Student Loans

It is no secret that there is a major student loan debt crisis in the U.S., and it doesnt appear to be slowing down anytime soon. To avoid having your potential college student rack up tens of thousands of dollars of debt before they even begin their adult lives, the time to start saving money for college is as soon as possible.

But many families may still not be able to save enough to cover the full cost of college, and due to lack of funds, lots of students sign on the dotted line, agreeing to spend the next decade (or more) of their lives to pay for that nice, shiny, piece of paper framed on the wall.

To avoid taking out student loans, have your student begin saving money for college as soon as possible, and have them apply for every scholarship that is offered.

Early Bird Gets the Worm

As early as possible, have your student set up a 529 Savings Plan, and deposit a designated amount every month into the account. A 529 Savings Plan works similarly to a 401K or IRA by investing contributions in mutual funds or similar investments.

Since a 529 Savings Plan is an investment account, the amount will go up or down based on the performance of the particular option that is selected. However, it is usually the fastest way to build up enough cash (depending on the age of the child when the account was opened). Its better than a regular savings account.

Going to college is not cheap, and if saving for college is important to the family, then start saving now, no matter how old the children are or how close they are to going to college. And dont forget to ask Grandparents if they would like to contribute to the childs college savings account.

The Check Rule

Teach children the value of saving money early by having them deposit any checks they receive as gifts for birthdays or holidays into their college savings account. Since checks are typically written for higher amounts, this can quickly increase the savings power of the childs account with very little effort on the parents behalf.

Develop a Plan with Your Child

If children are older, develop a plan with them. First, determine if college is something that they even want to pursue. Second, decide where they would like to go to college (i.e. their dream school). Third, show your child the actual cost of attending that school along with other schools for comparison. Dont forget to factor in cost of living expenses like dorm rooms, food plans, or transportation costs. And if the school is out of the state, make sure to include the out of state tuition fees.

Allow your child to see how much college costs; explain to them that college is a privilege and not a birthright; and that if they want to attend, this is how much it will cost. Afterwards, explain how scholarships work; help them determine which scholarships they can apply for; and encourage them to do so.

Finally, explain that they need to take a certain percentage (work this number out with the child) from either their paychecks or allowance (or even both) that will automatically be saved towards their college funds. This will not only teach them to appreciate the opportunity to attend college because they are helping to pay the way, but it will also teach them a valuable life skill saving money towards their future.

Internships

When it comes to attending college, look into how much could potentially be saved by forgoing the traditional 4-year plan. By taking part in an internship or co-op, the student could potentially graduate in less time, saving them an entire year of tuition costs.

If paying for college is something that parents want to provide for their child, they should start saving now, and help their child (as young as middle school) start thinking and planning for college. The more prepared they are before they begin applying to schools, the easier it will be for them to understand the true cost of their education and avoid running up student loan debt.

Jessi Fearon is a personal finance coach. For more information, visit JessiFearon.com