Saving for College
- Consistent savings can be an effective approach to meeting rising college costs.
- Talk openly about your own likely contributions, and explore funding options with your child.
- Let a healthy attitude toward compromise help boost your potential for success.
Three C’s of college savings
Children grow up quickly. Before you know it, your little soccer star or science whiz is in high school and starting to talk more about colleges and careers.
The cost of sending just one child to college for four years can be staggering. Tuition and fee hikes regularly outpace inflation. Rather than sending your children and grandchildren into the world with a burden of student-loan debt, you can save to help cover at least a portion, if not all, of their higher-education expenses.
As you anticipate, save, and plan for the future, keep in mind the three C’s of college funding: consistency, communication, and compromise.
It’s common to assume saving will be easier in the future when you’re earning more, but it’s likely that as your family and income grow, so will your expenses associated with your standard of living. If you wait until your kids or grandkids are closer to college age, you may find you’ve waited too long. You might face the prospect of scaling back the family’s finances in other ways to save for hefty tuitions, fees, and living expenses.
Since regular savings may work in your favor, regularity may be more important than the amount you save at each interval.
A better approach is to save early and consistently for your child’s education. Since regular savings may work in your favor — especially with compounded returns and time on your side — regularity may be more important than the amount you save at each interval. A good rule of thumb can be to contribute a set amount to a college savings plan with every paycheck.
One tax-efficient way to save for education is through is a tax-advantaged 529 plan, which lets you choose an investment strategy from various options. Most states offer 529s. Most are national plans and are available to residents of any state, although many of them offer in-state residents additional state-income-tax benefits.
Other education-savings vehicles include Coverdell education savings accounts (ESAs) and custodial accounts.
Talking about the future can be just as important as saving for it. When discussing money, college, and the future with teenage children, be open about your own expectations for the future. Talk about how much you’ll be able to contribute toward their college expenses and present the college funding obstacle as a formidable but worthy challenge you will tackle together.
In other words, through savings, scholarship applications, government grants and other sources of financing, you’ll work together to help make college happen. With clear expectations, you’re also more likely to be kept in the loop as your child bats around ideas about colleges.
If particular schools look promising or scholarships enter the equation – especially during the junior year – it’s worth sitting down and going over how much the school will cost for four years. Subtract college funds you’ve already saved and look at the amount left over – your likely school loan amount. Factor in how any scholarships or grants could reduce the loan amount. If you’ll need financial aid, be sure to begin evaluating your options no later than your child’s junior year in high school.
For an idea of what monthly repayments will eventually look like for a given loan amount, try the loan calculator at finaid.org.
After looking at school options and associated costs, you may decide some options are just too expensive. It’s a good idea to put the more affordable picks at the top of your list before spending too much energy focusing on unrealistic options.
The more time you spend looking into options that suit you both financially and personally, the more likely you are to make the right choice.
- If you’re not already saving for a child’s college funding, start now.
- If you’d like help, ask a Financial Advisor to help you decide whether a 529 plan, education savings account, or custodial account fits your needs and circumstances.
Please consider the investment objectives, risk, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest. Wells Fargo Advisors is not a tax or legal advisor.
Before investing, an investor should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other benefits that are available only for investments in that state’s 529 plan. The availability of such tax or other benefits may be conditioned on meeting certain requirements.
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