4 common questions about saving for college
How much? When? What kind of account? How to tackle the big questions around saving for college—with its looming, uncertain price tag.
How much do I need to save?
The cost of college depends on a variety of factors, including whether the school is public or private. While public colleges receive funding from their states, private colleges rely heavily on donations and tuition. So tuition at private schools tends to be higher. In 2014-2015, the average cost of tuition and fees for in-state students at a public four-year college was $9,139, according to the College Board; a private four-year college was $31,231. You can use those numbers as a benchmark to estimate your tuition bill. Just keep in mind that costs are likely to be higher in 10 or 12 years.
What if I start saving late?
Look for ways to trim your budget so you can free up money to save. You can also ask friends and family to contribute to your child’s college savings in lieu of birthday gifts. Students might consider a two-year community college, where they can earn credits at a fraction of the cost of a four-year program. You can use that time to save, and your student can transfer those credits to a four-year school later on.
What if I can’t possibly save enough?
Families pay for college from a variety of sources. In 2014, just 30 percent of tuition payments came from personal income and savings, Sallie Mae notes. Other sources, including scholarships, grants and loans, help pay the rest. A variety of government and private sources, including the schools themselves, offer these.
Tip: The federal government awards about $150 billion in grants, work study, low-interest loans and other financial aid each year. To tap into that aid, you must fill out a FAFSA—the Free Application for Federal Student Aid.
How can a 529 plan help?
A 529 is a tax-advantaged plan designed to make it easier to put away money for college. The plans generally offer a variety of investment choices. In addition to offering the potential for tax-free growth, 529 plans let you make tax-free distributions for qualified higher education expenses like tuition, room and board, and books or supplies. Keep in mind that, as with any investment, a 529 can lose money.
Tip: Some states offer tax breaks for in-state plans, so check with your state to see whether a certain plan qualifies.
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