5 ways to save money for your child’s education
Your child has gone from diapers to braces in what seems like an instant. And as they’ve grown, so have the costs of taking care of them. Now they’ve set their sights on going to college and you’re starting to wonder how you’re going to pay for it.
College costs in the US have been rising for years and show no sign of slowing down. Since 2000, the average cost of college tuition and fees has increased 124% at private four-year institutions and by a whopping 179% at public four-year institutions.1 The average cost of tuition and fees for the 2024-2025 school year is $43,350 at private colleges, $30,780 for out-of-state students at public school, and $11,610 for in-state residents at public colleges.2
Given the high cost of higher education, you may be wondering if getting a degree is even worthwhile for your child. If you’re measuring success based on financial benefits, a degree is certainly worthwhile! A college education remains the most reliable path to financial success. It’s estimated that college graduates earn $1 million more over their career than non-graduates.3
So how do you pay for your child’s expensive but valuable education?
By carefully planning and making a few smart moves now, you’ll be better able to manage college costs in the future, including reducing the amount of money your child will need to borrow in student loans.
Here are five ways you can start planning for your child’s education right now.
1. Start saving with professional guidance
You have a secret weapon at your disposal when it comes to saving for college — time. Setting aside $100 a month beginning when your child is born, compounded at a relatively modest interest rate of 4% a year, will add up to $24,000 in 18 years.4 When you work with me, I can show you how to regularly put away money in amounts that still allow you to plan for life’s other expenses. I can help you navigate different options to help fund your child’s education, and help you properly declare all your assets on financial aid forms.
2. Use a savings plan
Opening a 529 plan may be another great strategy. These accounts are sponsored by state government and designed specifically to encourage education savings.5 Here’s how they work: Money is set aside in the plan from your already-taxed income, but the interest that money will collect isn’t taxable if it is used for qualified education expenses.6 Any money withdrawn from the account and spent on eligible education expenses — including college, elementary, and secondary schools — won’t be counted as taxable income. There are stipulations, contribution limits, and age ranges on each type of savings plan, and even on the variety of investments you can pursue. I can help you navigate the options and make the best choice for you.
You might also want to consider whole life insurance. You already know life insurance is an important way to protect your children in the event of your death, but a whole life insurance policy offers the added benefit of building a tax-efficient, cash-value asset that you can later use to help pay for education costs.7, 8
3. Ask for more lasting gifts
Instead of giving toys and clothing your child will quickly grow out of, grandparents may be happy to contribute to their grandchild’s educational goals on gift-giving occasions. In fact, contributing just one Social Security payment a year into a 529 fund may add up to a helpful amount of money over 18 years.
4. Hire a college advisor
College financial aid packages can be confusing. Grants, awards, and scholarships are essentially free money to help fund your child’s education, and a professional college advisor can help you navigate the options and apply for the aid that’s available to you. Certified professionals charge for their help researching colleges, filling out admissions forms for financial aid, and interpreting the financial aspects of acceptance and award letters. Their guidance may prove invaluable. A college advisor can help you complete your College Scholarship Service Profile (CSS) for non-federal financial aid, and your Free Application for Federal Student Aid (FAFSA®), as well as any school-specific financial aid forms.
5. Think outside the box
Though in-state public colleges often charge the most affordable tuition, there may be significant grant and scholarship funding available to bring down costs at private institutions, including a staggering variety of scholarship funds — even for those who aren’t athletically or academically qualified. There may also be awards for college-bound students within your specific community, religious, or social group.
Even if you don’t hire a professional college advisor, your own research time can pay off by uncovering opportunities your child might not have considered.
With enough research, you may also uncover some non-traditional methods of putting money away for college, like reward-based credit cards, which can reimburse you up to 2% on your purchases and make deposits directly into your 529 account.9 Make sure you explore all possible avenues to uncover opportunities you may not know are out there.
Whatever methods you use to save for college, it’s important to monitor your financial strategies annually. Many government limits, including income ceilings and tax allowances, do change over time – often for the better. The most important thing is to save money for your kids’ college and to plan with optimism for your family’s future. Remember that the more time you let the earnings on your savings compound, the more options you’ll be making possible for your kids.
Disclaimer
1 Facing Financial Fragility: How changes to the economic landscape are impacting Americans’ wallets and habits, Guardian, 2024, https://www.guardianlife.com/reports/financial-wellness/facing-financial-fragility
2 Trends in College Pricing: Highlights, CollegeBoard, 2024, https://research.collegeboard.org/trends/college-pricing/highlights
3 The College Payoff: More Education Doesn’t Always Mean More Earnings, Georgetown University Center on Education and the Workforce, 2021, https://cew.georgetown.edu/cew-reports/collegepayoff2021
4 Hypothetical examples are not intended to suggest a particular course of action or represent the performance of any particular financial product or security.
5 Updated Investor Bulletin: An Introduction to 529 Plans, US Securities and Exchange Commission, 2023, https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-16
6 Investors should consider the investment objectives, risks, charges and expenses of a 529 plan carefully before investing. This and other information are contained in the Program Description, which may be obtained from your investment professional. Please read it before you invest. A 529 plan is a tax-advantaged savings plan, issued and operated by a state or educational institution that helps families save for college. Investments in 529 plans are not insured by the FDIC or any other government agency and are not deposits or other obligations of any depository institution. Investments are not guaranteed and are subject to investment risks, including loss of the principal amount invested. Tax implications vary significantly from state to state. If you or the designated beneficiary is not a resident of the state offering a 529 plan, you may want to consider, before investing, whether your state or the designated beneficiary's home state offers its residents a plan with state tax advantages or other benefits. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
7 Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
8 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gained in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty. Some whole life policies do not have cash values in the first two years of the policy and don't pay a dividend until the policy's third year. Talk to your financial professional and refer to your individual whole life policy illustration for more information.
9 Should You Use Credit Card Rewards to Fund a 529 College Savings Account?, Nerdwallet, 2023, https://www.nerdwallet.com/article/credit-cards/should-you-use-credit-card-rewards-to-fund-a-529
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