There is little doubt that college costs have outstripped inflation over the past few decades and, as the cost only promises to go up over time, those who have small children should start learning about how to save for college. While it seems like a daunting task, preparation is necessary. Here we discuss 5 tips for saving for college.
Use Savings Bonds
Kids always want toys from grandma when it comes time to celebrate a birthday. Toys can be fun, but the children will wear them out or get bored with them over time. Why not have grandma and grandpa buy a smaller gift and start a collection of US Savings Bonds? The best thing about bonds is the interest that they pay out over time. This means that the gift will be worth more than the amount initially paid when it comes time to pay for college.
Some colleges allow for parents of future students to pay for college at today’s rate. For those who can afford to pay a fairly sizable sum of money, it is possible to save a nice amount on college costs by paying this way. The purpose behind prepaid tuition plans is a positive cash flow for colleges today that they can invest into their endowment. The college benefits by making enough of a return to offset allowing a student to attend 10 years in the future without paying additional funds. Of course, it might not be worth it for parents to take out a loan to make this happen because the interest paid out would exceed the value. But for those with cash, this is a very good possibility.
529 Plans are becoming a more popular way of saving for college. States generally run these plans that allow parents and grandparents to set aside money for future college expenses. Unlike the prepaid college plans, those who use the 529 will wind up paying current tuition costs when their children begin their college careers. These plans also carry the advantage of cutting down on current taxable income.
Coverdell Education Savings Accounts
Similar to the 529 plans, a newer option for those looking to save money for college is the Coverdell Education Savings Account (ESA). There are a few benefits that are unique for these ESAs. The first is its tax-free status. Another is that parents can save up to $2,000 for any beneficiary under age 18 in an ESA each year. The funds can go to pay for elementary, secondary or post-secondary educational expenses.
Students Can Save
One of the best ways to save for college is for the student him or herself to save some of the funds. The savings can come from a part-time job or from a part of an allowance. Over time, some students will be able to save up several thousand dollars that they can put toward their education. This process will actually have the side benefit of making a student appreciate the opportunity even more.
Saving for education can be quite difficult and those who figure out how to save for college early in the game are at a distinct advantage.
Related Resource: 5 Important Things To Know About College Loans