Saving for college at the last minute

Seven tips to help with college expenses when high school graduation is right around the corner.

If you’re not sure how you’re going to cover the cost of your child’s college education, you’re not alone. In 2016, parents had an average of $16,380 saved, according to Sallie Mae, but a single year of college could easily cost twice that much. If those numbers seem daunting, don’t panic: There are many ways to help support your high schooler’s pursuit of a college degree. 

1

Figure out what you can contribute

Estimate how much your student might need per year to cover tuition, fees, room and board, textbooks and supplies, and other living expenses. Then, examine your budget to find out how you can boost your savings. Even small changes to your habits, such as cutting back on dining out or other leisure activities, can free up hundreds of dollars each month. Saving now can help whether your kids are a few months or years from college.

2

Get friends and family involved

If you have a 529 college savings plan for your child, suggest that relatives contribute to it instead of buying birthday or holiday gifts. 529 plans are flexible, tax-advantaged accounts that let you make contributions to help pay for college expenses. You aren’t taxed on your funds as they grow—and you pay no federal (and often state) income taxes on withdrawals used for qualified higher education expenses. For the most up-to-date information about rules and regulations for 529 plans, check the IRS website.

Merrill Edge® 529 College Savings Plans can be a helpful part of your strategy to tackle the cost of higher education.

3

Apply for financial aid

Billions of dollars in student aid are available each year. Most schools award aid based on the Free Application for Federal Student Aid (FAFSA) form, so be sure to fill out and file your FAFSA before the deadline. Aid is on a first-come, first-served basis in many states, so it’s recommended you get your FAFSA in as soon as possible. Also look for private scholarships and grant opportunities based on your teen’s interests and hobbies.

4

Consider different college choices

College costs vary widely. The sticker price for four years of in-state public college can be a fifth of the cost of an Ivy League education, according to 2016 data from the College Board. Keep in mind, however, some schools may offer more robust financial aid packages and other assistance. Talk to your teen about school choices and setting realistic expectations. You should also discuss other possibilities to keep costs manageable such as a two-year degree with the option to transfer to a four-year school later on.

5

Think about how debt affects your—and your child’s—future

Americans owe more than $1.3 trillion in student loan debt, according to the Federal Reserve Bank of New York. In 2015, 68 percent of graduating seniors from public and private universities had student loan debt, with an average of $30,100 per borrower, according to The Institute for College Access and Success. Here’s how long it would take for a typical graduate to pay that off.

Student loan debt is

$30,100

If interest rate is

4.5%

If monthly payment is

$250

Length of time to pay off debt is.

161 months

(more than 13 years)

If your child needs student loans, be sure she understands how it will affect her lifestyle after graduation. Borrowing only what’s necessary can help her start out on the right foot.

6

Get your teen involved

Since your child benefits directly from the college degree, get her involved in paying for it. Encourage your student to explore summer jobs and work-study opportunities, and to apply for grants and scholarships to minimize student loan debt.

7

Don’t compromise your future

You may be tempted to dip into your retirement accounts to help cover the costs of higher education, but doing so might result in you paying additional taxes on that money. Plus, you deplete those accounts’ long-term growth potential. Try to continue funding your retirement accounts even as you help your child pay for higher education. Remember, there are options to help pay for college, but only you can fund your retirement.

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The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its affiliates, and Khan Academy, assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment options.

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