5 Smart Savings Tips for College

In today’s demanding world most young parents are so preoccupied with providing for their child’s immediate needs, they fail to realize one of their most important long-term responsibilities, that of providing the means for their child to obtain a college education.  Given the added opportunities for growth and gainful employment that a quality education can provide, here are 7 smart ways to help your child prepare for the financial challenges of college.

  1. Start now: Regardless of your child’s age, the optimal time to start saving for college is now. Upon the arrival of a newborn, parents should at the very least start a savings account. Although the contributions from each paycheck may seem modest or even miniscule, consistent contributions over time always pay off, especially if the money is invested properly. If children are old enough to grasp the basic concept of saving, involving them in the process can help them learn the value of money and adopt healthy savings practices that will benefit them, not only in a college environment, but for the rest of their lives.
  2. Involve family members: Informing grandparents and other relatives that you have implemented a college savings plan for your child is a great way to let others participate, should they choose to do so. Bear in mind that the current state of the economy is causing extra financial challenges for everyone, including those who are retired. Although it’s fine to offer others the opportunity to participate in a child’s college fund, it is not appropriate to openly solicit contributions.
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  4. Identify the real costs of college: Let’s face it, regardless of your financial status, meeting the ever increasing costs of a college education can seem daunting. Gaining a greater understanding of what the real costs will actually be can help bring those expenses a down to earth. For starters, many high school students who excel academically can take college accredited courses while they are still in high school. Depending on the number of credits earned, this can knock an entire semester’s worth of tuition and other college expenses off of the total tally. After graduating from high school, students can save even more on tuition costs by attending two-year Community Colleges prior to transferring to traditional 4-year institutions. Another cost-effective opportunity gaining greater popularity and acceptance is the ability to take college accredited courses in the virtual classrooms of online universities. Students who take online courses with flexible schedules are afforded the opportunity to work and go to school at the same time, thus reducing out of pocket college expenses considerably.
  5. Choose the right investment strategy for you:  Although opening a savings account and depositing reasonable amounts consistently is the best first strategy—especially if college is just around the corner and funds need to remain readily available—the low rate of return makes a savings account impractical in the long run. The next option, offering little risk and slightly higher returns than a savings account would be U.S. Savings Bonds, which not only offer a government guaranteed rate of return, but may be exempt from taxation, provided the proceeds are used solely for college expenses. Moving up the ladder of risk vs. return, the next options would be Money Market Accounts and Certificates of Deposit (CD’s), both of which offer higher returns than savings with minimal risk to the principal. The next and more aggressive investment vehicle is the Mutual Fund, a pooled approach to investing that carries greater risks, as the value of the principal may fluctuate along with the rates of return. Mutual funds work well as part of a long-term investment strategy, but as college draws closer it’s best to revert back to the more conservative approaches to protect the full value of the principal and make the money more available. The next investment vehicle to consider is the 529 plan, a state or college operated investment plan designed solely to help families more fully meet the future costs of a college education. Being that there are a large number of 529 plans out there and that they tend to vary from state to state and institution to institution, it would be wise to seek the help of a financial expert to make sure you choose the one that is best suited to your future student’s needs.
  6. Do your homework regarding financial aid: One critical strategy to cut college costs that every student needs to aggressively pursue is applying for financial aid. The most common forms of financial aid are academic scholarships, grants, work-study programs and government loans. Although competition for financial aid can be fierce, with some of the determining factors being academic achievement, athletic ability, choice of institution and courses of study, the fact remains that there are literally billions of dollars available each year. Diligence and persistence on the part of both students and parents in seeking out sources of financial aid can play a dramatic role in reducing the cost of a quality college education.

Robert Cordray is a retired business consultant and freelance writer for noomii.com. He currently resides by the beautiful beach, with his beautiful wife, and
beautiful kids.

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