How can I afford it?
When it comes to college costs, remember:
- Some colleges cost less than other colleges.
- Lots of financial aid and funding sources are available—there are more opportunities now than ever before!
- You and your parents have time to start saving for college.
Most people aren’t able to save enough money to cover all college costs. But the more that comes from savings, the better off you’ll be. Borrowing money for college can cost twice as much as saving it, according to the financial aid Web site Finaid.org. By employing an effective college savings strategy that takes advantage of college-specific savings options, families have the potential to significantly ease the financial strain of paying for college.
Here’s an example: Say you save $200 a month for 10 years at 6.8 percent interest. You’ll wind up with more than $34,000 for college. But if you borrow that money at the same interest rate, it will cost you nearly $400 a month for 10 years to pay it back. In addition, saving in a 529 college savings plan means your money grows income tax-free. Money, Kiplinger’s Personal Finance and SmartMoney magazines all recommend 529 plans for college savings because of their tax benefits.
The earlier you develop and begin investing in your college savings plan, the better prepared you will be to support your child’s educational goals.
When to start a savings plan?
The golden rule to college investing is start now — whether your child is a newborn or a high schooler. Even if you can’t contribute all you’d like to, one of the most important things to understand about this process is that every little bit counts. And it counts all the more if you give it enough time to grow.
The keys to making your child’s college investment grow are starting early and making regular contributions. It is always difficult to take any money out of your monthly budget, but that’s just the point; if you don’t force yourself to put aside a set amount each month, you won’t be able to save the amount of money needed to make your child’s college dreams a reality. If you invest $50 a month for 18 years, your investment will grow to $22,470 with an average annual return of 8 percent.
While it’s very important that your family prepare financially for college (save, save, save!), don’t forget—you don’t have to pay for college all by yourself! The U.S. Department of Education has over $80 billion in financial aid for students who qualify.
Remember: Save as much as you can afford and do it systematically. Always keep in mind the bottom line—college is affordable!