In 2002, the average annual cost for a public university was $9,338. It is estimated that by 2017, the average annual cost will be $19,413. And that’s just for tuition and credit fees. Let’s not forget about room and board, books, food, clothes and extra activities.
With those figures it mind, it would be wise to start planning for your child’s education today.
You already know about loans and scholarships but those aren’t the only options. You don’t have to go into debt! There are several choices to help you prepare for your child’s future.
A 529 or qualified tuition program is a (federal) tax-free investment plan that allows families to save for their childrens college educations.
Each state has its own 529 plan and you do not have to be a resident of a particular state to invest in that state’s plan.
The 2 types of plans include:
Prepaid Tuition Plans – These plans allow you to pay for your child’s in-state tuition at today’s prices. These accounts are low-risk and they are guaranteed to match or exceed in-state inflation. However, these plans are often limited to state residents and the cost may not be covered if your child decides to attend an in-state private university.
Education Savings Accounts- Or college savings plans are investment accounts whose value fluctuates with the market. They can be used at eligible public and private universities- there are no residency requirements. Additionally, some plans have high contribution limits per beneficiary and you can contribute up to $11,000 per year without paying a gift tax.
Even if your child only has a few years until it’s time to go to college, it’s never too late to begin saving. Determine where you can cut costs and put that money into a high-interest savings account.
For example, instead of buying 2 video games as a birthday present, buy one and put the extra money into a savings account. What about Christmas and Hanukkah? Sure, it’s fun to open presents but I guarantee that the novelty of those gifts will soon be forgotten and later on your child will thank you for making sure that their education was financed in a stress-free way.
Here is a tip: look for a FDIC insured bank that is based online. These banks offer higher interest rates because they don’t have the operating overhead of having branches. The work the same way as a regular bank except that there is no physical branch. You deposit money through your current checking account and receive monthly statements either via email or through the mail.