It’s hard to find anything close to the pride and joy having kids can bring you. And one of the best gifts we can give them is a solid education. That means reading to them when they’re toddlers, helping them with homework, and paving the way to college.
It’s a good idea to begin putting a college plan in place as soon as you can.
As the end of high school nears, not only are grades and school involvement important, but here comes the potential expense of entry into college. Waiting until then to look at the cost of attendance could be jaw-dropping.
Whether you plan to foot the whole bill or cover just a portion, you may want to start thinking about how much you can save monthly to hit your target.
Considering the Future Costs
As you think about saving for college, consider the potential cost of when your child will actually attend rather than focus on what it costs now.
There’s the matter of tuition and fees, usually reported as one figure. The averages for the 2020-2021 academic year, according to CollegeData:
• $10,560 at public colleges (for in-state residents)
• $27,020 at public colleges (for out-of-state residents)
• $37,650 at private colleges
“Cost of attendance” for a year includes that figure and, usually, room and board, books, supplies, transportation, and personal expenses. For the 2020-2021 academic year, CollegeData put the average cost of room and board alone at:
• $11,620 at public colleges
• $13,120 at private colleges
Living and eating at Mom and Dad’s obviously will reduce those costs.
The average price of books and supplies for students at both public and private colleges came to $1,240.
Now let’s say you want to estimate what college costs might be years later, when your child sets off for college. Assuming 15 years until your child starts as a freshman and a 5% increase in costs per year, here’s the estimate per year 15 years down the road for tuition, fees, room, and board.
• Cost today at a four-year public college, in-state rate: $22,180
• In 15 years: $46,111
• Cost today at a four-year public college, out-of-state rate: $38,640
• In 15 years: $80,330
• Cost today at a private four-year school (average): $50,770
• In 15 years: $105,547
Keep in mind that most college students take more than four years to get a bachelor’s degree. In fact, most take five or six years, according to the National Center for Education Statistics.
Those are big numbers, but every student who meets eligibility requirements can get some type of federal student aid, says the Federal Student Aid office. And then there’s merit aid, or merit scholarships, which are based on academic achievement or other talents or skills. Merit-based aid does not have to be paid back.
College Savings Vehicles to Consider
There are several options and accounts to help you with saving for your child’s college education. Some have tax benefits and others offer flexibility, should your child decide to forgo college, so you should explore the plan that best fits your specific needs.
Ways to save for college include:
• A 529 plan, which breaks down into two categories: educational savings plans and prepaid tuition plans.
• Coverdell Education Savings Account
• UGMA/UTMA accounts
The difficult part in deciding when to start saving for college isn’t always as simple as picking out a savings plan. It might be less about “when” and more about “how”—finding room in your budget to meet education expenses and all your other financial goals.
Balancing College Savings With Retirement Savings
If you’re like many young parents, you may be wondering how to juggle college savings with all of your other expenses, including debts and retirement contributions. Drawing up a savings plan that doesn’t jeopardize your retirement planning or send your household finances into a nosedive is a great place to start.
Scholarships and student loans may be accessible to help pay for your child’s education, but the same cannot be said for your retirement nest egg. You would do well to consider how long you’ll need money in retirement and how that compares with four to six years toward a bachelor’s degree.
To get a better handle on how much money you will need to retire, the AARP advises asking four key questions : How much will you spend? How much will you earn on your savings? How long will you live? How much can you withdraw from savings each year?
One study found that the combined income and savings of parents and students makes up for nearly half (47%) of the funding families use to cover the entire cost of school. It also found that parents pay 10% of the total amount due by borrowing, and that students cover 14% with student loans and other debt-forming sources.
Parents deciding when to start saving for college might not want to think of it as an I-must-pay-for-it-all prospect. If you’re still stumped on how to balance both goals, it’s OK. At the end of 2019, before the financial repercussions of COVID-19, many non-retirees were struggling to save, the Federal Reserve found.
These eight tips for finding “hidden” money could help you get started thinking about funding retirement and college at the same time.
As college enrollment time gets closer, you could have a family discussion on how much student loan debt you and your child are willing to take on, if necessary.
💡 Recommended: Understanding the Different Retirement Plans
What If I Still Have Student Loan Debt?
Many parents who wonder when to start saving for their child’s college may also be asking how they can reduce their own college debt. U.S. student loan debt has ballooned to $1.71 trillion, the Fed reported. That’s an average of $37,700 in loans each for 45 million Americans.
If you find yourself with student loan debt while also saving for your child’s college education, there are at least four options that might help you to free up more money:
• Federal student loan consolidation
• Federal student loan forgiveness
• Federal income-driven repayment plans
• Refinancing private and/or federal student loans through a private lender
With student loan refinancing, depending on your credit history and income, you could qualify for a lower rate than the one you currently have on your student loans.
This could mean savings over the life of the loan, depending on the repayment term you select. But know that if you refinance federal student loans, you’ll lose out on any repayment plans or protections offered by the federal government, like Public Service Loan Forgiveness and income-driven repayment plans.
The Takeaway
When to start saving for a child’s college education? The sooner, the better. First, though, it’s best to make sure you are on steady financial footing, and then, if possible, find money here and there to save for your children’s college.
If you happen to still have student loans of your own, you may want to look at the flexible terms and fixed or variable rates SoFi offers to refinance student loans into one new loan with one monthly payment. There are no application or origination fees, and checking your rate takes two minutes.
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