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The costs of a college education in America have been going up for years. According to a report by the Education Data Initiative, college tuition, factoring in inflation, has increased by 747.7% in the last 60 years — a pointer to the overwhelming financial burden seeing a child through college could pose, especially for low-income parents. Fortunately, there are smart strategies families can adopt to manage these rising expenses and make higher education more accessible.
Going to college offers your child a future of opportunities. Despite the wallet-busting costs, you can make it happen with less stress by opting for these brilliant saving hacks.
1. Start Early, Grow Big
If you begin to save as early as long before your child is ripe for college, you could forge an ocean from little droplets of savings.
Most Americans attend college at age 18, usually a few months after graduating high school. If you start saving early as a parent, even in small amounts, you could have ample time to save big over the years. With the power of compound interest, you could save enough for four years of tuition before your child is ready for college.
2. Create a Realistic Savings Goal
Saving early isn’t enough. Creating a realistic savings goal is equally important. Long-term savings can be daunting, and understanding your monetary power before you start can keep you aligned with your objectives even in challenging times.
Consider the nature of your current job, the industry and projected changes, and every other factor that may influence your income source. How does a slice of your income going towards your child’s education affect your welfare and that of your household in the long term? Being optimistic feels great, but only a realistic savings plan guarantees success.
3. Automate Your Savings
Manually moving money into your savings account when you get paid is easier said than done. Automating the process, however, eliminates the temptation to divert college savings.
To automate your child’s college savings, you can instruct your bank to transfer money into a savings account automatically. Apps like Stash and Acorns also help you to automate your savings without hassle. Acorn offers a high-yield emergency savings account with an annual percentage yield (APY) of 5%, which is better than the national average of 0.46 APY.
4. Trim the Fat
Take a critical look at your expenditures as you consider saving for your child’s education. Are there excesses you can trim? Perhaps you can cancel some subscriptions or cut back on expensive dining costs.
It helps to have every available dollar to secure your child’s educational future. If you’re having a problem identifying the excesses you can cut back on, you can start by separating your wants from your needs to get a clearer picture.
5. Review Your Budget Regularly
You want to stay on track and be better prepared for eventualities. To stay ahead of unplanned disruptions, you should periodically review your progress and how your budget aligns with your goals.
The cost of higher education is always on the rise. When tuition and other fees increase, you may need to adjust your budget to match the increase by saving more.
6. Open a 529 Savings Account
The 529 savings account makes saving for your child’s college seamless and offers added advantages. Depending on what’s obtainable where you live, you can enjoy tax-deferred savings with interest.
A 529 is sponsored either by your state or state agency. Your withdrawals are usually immune to both federal and state tax as long as they are spent on qualified educational expenses such as tuition, student loan repayment, and some specific apprenticeship costs.
7. Set up a Roth IRA
While a Roth IRA is tailored specifically for retirement, you can use it to pay for your child’s college expenses. Roth IRA accounts allow you to save and amass interest without tax, and you can withdraw for educational expenses without a 10% penalty for early withdrawal.
One benefit of saving for college using a Roth IRA is being able to use unspent funds for retirement, even if your child chooses not to go to school or is funded by a scholarship.
8. Use Coverdell Education Savings Account
You can use a Coverdell Education Savings Account (ESA) to cover your child’s tuition and other school expenses. Unlike the 529, the Coverdell Savings account includes provisions for children in elementary and secondary schools in the United States.
Before opting for a Coverdell ESA account, be mindful of its limits. For example, you cannot contribute more than $2,000 per child annually. Your contributions can also be lower, depending on your Modified Adjusted Income (MAGI). The funds in your ESA must also be used up or transferred by the time your child turns 30.
9. Consider Setting up a Custodial Account
Besides the Coverdell ESA, there are two recognized custodial accounts for savings: the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). The UGMA allows you, as a parent, to transfer assets to your child (under 18) without a trust, regardless of where you live in the U.S.
With the UTMA, you can transfer all kinds of property not covered by the UGMA, ranging from cash to bonds, stocks, real estate, and just about anything else to your minor. The potential tax savings is the primary benefit of having either UGMA or UTMA. You also get to control and grow the assets on behalf of your child without taxes or withdrawal penalties from the IRS until the child becomes an adult.
10. Open an ABLE Account
If you’re a parent to a child with a disability, you can prepare for their educational future using an ABLE account. AnABLE account is tax-advantaged. It doesn’t tax income by the beneficiary, which could be you or your child. You also don’t get taxed for after-tax dollar contributions by others, including family and friends. Some states may tax income, but you don’t have to pay federal taxes as you save for multiple purposes, including your child’s education.
You can also open an ABLE account in states that accept outside residents to avoid the income tax if your state requires it. An ABLE account doesn’t affect your chances of getting other government assistance.
11. Seek Assistance From Relatives and Friends
Family is everything, and that’s why you may not have to shoulder the burden of your child’s education alone. You can share your educational savings goals with family, friends, and acquaintances by requesting their support.
A perfect opportunity to communicate your plea would be during birthday celebrations, picnics, or holidays. Instead of asking for a one-time lump donation, you can ask for small amounts over a long period, perhaps instead of a birthday gift each year.
12. Early College Credit
By collecting early college credit while in high school, your kid can significantly reduce the cost of college. Encourage them to take Advanced Placement (AP) courses, community college classes, or participate in dual enrollment programs. By the time they graduate high school, the student could have enough hours to be a college sophomore.
Besides providing an opportunity for your child to graduate in fewer years, early credit programs are less expensive than traditional college programs, which could slash a big chunk of your child’s college expenses in the future.
13. Get the Kids Involved
It’s wise to get your kids involved. Often, the juiciest college scholarships and grants are awarded to students based on merit. Encourage your child to take high school seriously.
You can advise them to alternate between periods of full-time study and paid work. That could reduce the financial burden of seeing your kids through school alone.
14. Your Employer May Reimburse You
If you work at a university, your employer may have tuition assistance for your kids, which may cover partial or full college expenses. You can discuss these possibilities during job interviews or before you accept your appointment.
If you work for organizations like Amazon, Apple, AT&T, and others notable for reimbursing employees’ college expenses while on the job, you could be relieved of having to pay for your own and your child’s education. With reimbursements, you can save more for your child’s education while you go to school for free or at a discount.
15. Send Tax Refunds to Savings Accounts
If you overpaid your taxes, your state and federal government will reimburse you. You can direct the refund into your child’s education savings to give it a lump sum boost. Tax refunds can substantially contribute to your child’s education in the long term.
Federal income tax, for example, will hit an average of $2,850 in 2024. If you save that much over 10 years, that could make up to 25% of your child’s tuition, considering that tuition at an in-state public institution in the U.S. averages $108,584 over four years, according to the Education Data Initiative.
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