If you’re a parent, you’ve likely already begun to worry about how you’re going to pay for your kid’s college tuition. But what percentage of parents pay for college? It may be less than you expect.
As the cost of college has gone up, the number of parents planning to take on responsibility for the full cost of college has declined. Currently, just 29% of parents plan to fully cover college costs for their kids.
This number is trending downwards: according to the same report, in 2016 43% of parents planned to pay for the entirety of their child’s university costs. More parents plan to help with some college costs. In fact, the average parent plans on paying for around 62% of the total cost of college for their kids. And seven in 10 parents are actively saving for college costs.
How much exactly should parents be saving? Average yearly tuition and fees have risen to more than $35,000 for private schools and more than $10,000 for state residents at public colleges.
Add on living costs, and some students can expect to shell out almost $50,000 for one year of higher education. That means that even parents who only plan to pay for part of the costs of college still must save tens of thousands of dollars to help their kiddos with college.
Saving for Future College Costs
It can seem insurmountable to even think about saving $35,000 (per year) for college costs on top of all your other financial responsibilities. A common recommendation is to pay off your own student loans before putting significant amounts of money towards college savings. Some parents find that refinancing their own student loans if they haven’t paid them off already allows them to save money—giving them more financial wiggle room to start saving up for future educational expenses.
How can refinancing help you save on your student loans so you can start saving for your kids’ education? Student loan refinancing allows you to trade in all your student loans for one new loan with a potentially lower interest rate and more favorable repayment terms.
What is the benefit of trading in old student loan debt for a new loan? When you refinance your student loans, the refinancing lender looks at your current financial situation, including your credit score, income, and future earning potential (among other factors) to calculate an interest rate that could potentially be lower than what you might be paying to the federal government or a private student loan lender.
Decreasing the interest rate allows you to save money over the life of your loan (provided your term remains the same or is shorter, of course). On top of potentially saving on interest rates, refinancing your student loans can consolidate multiple student loan payments into one monthly payment.
Furthermore, if you’re able to shorten your loan term through student loan refinancing, you could pay off your student loans even faster, further reducing the amount of interest you’d pay over the course of your loan. Those savings can be converted into savings for your kiddo’s future education—hopefully saving them from having to take out too many student loans themselves.
Tips for Saving for College Costs
If you’re among the 70% of parents who are actively saving for your little one’s future college expenses, it can be difficult to know the best way to save. The good news is that you’ve got plenty of options to help you maximize your savings. In fact, one of the main benefits of saving up for college while your little one is still fairly little is that you have time on your side.
If you can sock away even small amounts of money over time, depending on where you put it, you give that money a chance to earn interest or dividends over time—and potentially increasing the amount you’ll have to put toward your child’s tuition payments.
Once you’ve decided to start saving up a college fund, you’ll have to choose where exactly you want to save that money. While some parents choose to simply set aside cash in a regular old savings accounts, the relatively low interest rates on most savings accounts mean that your money may not grow much over time.
Instead, many parents consider a government-sponsored savings program in order to net some serious tax benefits, or even to start investing in order to grow money over time.
When it comes to government savings plans, you can choose from a 529 plan , which offers generous tax benefits, or a Coverdell Education Savings Account , which allows you to invest in stocks and bonds to cover educational expenses.
Many parents also find that starting an invest account is another way to grow their investments.
While fewer and fewer parents are ready to take on the full cost of their child’s college education, starting to save today can help you save as much as possible for future educational expenses.
Just remember, early planning can allow your money to grow over time, hopefully helping you join that 29% of parents who can totally cover their children’s college costs—without undue financial stress.
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SoFi Student Loan Refinance
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