The month of September brings not only the end of summer, but the beginning of the school year. For many parents, the start of school can throw the reality of saving for their child’s higher education into sharp relief. With over 65% of Americans now attending college, families are beginning college planning earlier than ever, and you may find yourself facing the challenge of deciding on a savings plan, or wondering if a savings plan is even right for you.
That’s where we come in- we’re doing a multi-part series on education planning. We’ll be looking at factors to consider when deciding on a college savings plan, and we’ll break down some of the most common savings plans, so you can decide which plan is best for you and your family.
Important factors to consider when saving for college:
1. Consider how much you need to have saved
This may seem obvious, but before making any huge adjustments to your budget or current saving plan, it’s important to sit down and consider your monetary needs. Getting an idea of what college expenses might be like can be a huge help when planning how much to save for the future. This can also help you evaluate where you are, and whether you are on track to meet your upcoming needs.
According to The College Board’s 2014 Trends in College Pricing Report, the average annual cost of a four-year public university (with in-state tuition) is $23,410. For out-of-state tuition, the annual average is 37,410. By contrast, private four-year universities are about $46,272 (these prices include room and board, supplies, books, and personal expenses).These averages can help you get an idea of how much you may need to spend, depending on which university your child chooses.
2. Will your child qualify for financial aid?
Since financial need is usually based on parent income, knowing if your salary qualifies your child for financial aid can help immensely with college planning. There are two primary types of financial aid: need-based and merit-based. Having an idea of which type of aid your child may be qualified for can allow you to adjust your savings amount accordingly.
However, be mindful of depending too heavily on the promise of financial aid. Although it is most often need-based, determining how much financial aid you are qualified for is an inexact science. There are many factors that influence financial aid packages, and it is always a good idea to have a back-up plan.
3. Time Frame
Knowing your child’s time frame for college can also help with saving. Will he or she attend college right after high school? Attend a community college and transfer? Take a gap year to travel? Although you may not know your child’s plans for college, thinking about alternative options can help you to create “wiggle room” when creating a plan for college savings.
Regardless of your savings plans for college, it is important to discuss college saving with your children, and to get a sense of what his or her plan may be. Communicating expectations ahead of time can help you and your children build a better plan for the expenses that lie ahead.
4. Becoming familiar with the various saving options
In our next post, we will look at some of the individual college savings plans to help you determine which option is right for you. It may also help to consult a financial professional about your savings goals. He or she can help you figure out the best way to meet your college needs, without breaking the bank.