25 Startling Facts About Saving for College That Every Parent Should Know

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Parents want to provide their children with the best of everything, including the best options for college education. Many parents begin to save up for their children’s education costs when they are very young while considering the expensive tuition fees and other expenses accompanying higher education. Saving for college is not an easy task; it takes years to accumulate enough to cover all the necessary costs. Here are 25 startling facts about saving for college that every parent should know:

Tuition Costs Continue to Rise

Rising costs of amenities and housing are a common trend worldwide, and these costs are often reflected in education. Tuition and other fees have seen an exponential increase over the last three decades that many say is outpacing inflation rates. Parents who want to save up for their children’s education must ensure that these rising costs are accounted for in the savings.

There is a Student Debt Crisis

The US is facing a major student debt crisis, with millions of Americans owing student debt that has surpassed the trillion-dollar mark in total. Many parents want to ensure their children do not have large debts. Parents who want to ensure that their children avoid student debt can also encourage children to save up their money to contribute to a college fund that can significantly help cover costs in the future.

The Earlier You Start, The Better

Saving up for long-term goals is always better when you start as early as possible. This can help compound interest kick in. It is important to remember to find proper investment tools that can help you reach your financial goals faster. Savings accounts that offer compound interest may be the best way to ensure that your college fund can multiply over the years.

Parents Can Use 539 Plans to Enjoy Tax Benefits

529 plans are plans that offer tax deferments and are designed to help parents pay for their children’s college expenses. Some states in the US do not charge any taxes for withdrawals made from these savings accounts, significantly contributing to the overall savings that can increasingly help fund college education.

Some Students May Qualify for Federal Student Aid

If you are a parent who was not able to accumulate enough savings to cover the costs of college for your child, you can consider the Free Application for Federal Student Aid, which provides financial aid to students to attain a college education based on the family’s income and assets. However, specific criteria must be met to qualify for this kind of financial aid, which makes it difficult for some people.

Parent Savings Don’t Account for Total Costs

While the primary goal of saving for college is to build a fund that can cover the total costs of attending college, some of the most significant portions in savings only account for 43% of the total college costs. These savings can greatly contribute to college costs even though they do not cover the whole amount. Some college students can cover the rest of the costs through scholarships, grants, loans, or even gifts.

529 Plans Can Cover Other Educational Costs

One of the main aims of a 529 plan is to help parents save up for their children’s college education. Today, the 529 savings accounts can be used to cover tuition expenses for more than just colleges and universities but other institutions that may be qualified under the account. These can include education programs like two-year colleges, trade and vocational schools, private or religious programs, apprenticeship programs, and much more. You can contact your savings account institution to determine all the programs these savings can cover.

Some Savings Accounts May Include Hidden Fees

Suppose you are opening a regular savings account for your child’s college education. In that case, it is essential to know that some financial institutions may charge you with hidden fees that can erode your savings over time. Before opening a savings account, ensure that you are well informed about all the terms and conditions of the account and all kinds of fees that may emerge over time.

Tuition Costs May be Higher for Out-of-state Students

Generally, many universities and colleges offer tuition costs at a lower rate for students who are from the same state as the college they want to study in, while the out-of-state tuition costs can be much higher than the in-state costs. If you are saving up for your child’s college education, you may want to remember that tuition costs can vary based on what state you are a resident of. If you live in a state with fewer colleges, you may have to pay higher tuition for your children.

Beneficiaries of 529 Plans Can Easily Be Changed

A great benefit of the 529 plan is that you can change the beneficiaries of the savings account, or the funds can even be rolled over to other relatives or used for future grandchildren. This can be extremely beneficial, especially if your child decides not to pursue a college degree. The 529 plan is not a fixed savings account, and its efficient beneficiary transfer system can be a great way to ensure that you do not lose money because your child does not want to go to college.

Family and Friends Can Contribute to Your Savings

Relatives and friends can also contribute to your child’s education fund through gifts that come as money. This can be very helpful for parents who may find it challenging to contribute significantly to their monthly savings. You can even use a 529 plan to receive gifts from loved ones by providing a gifting link where money can be sent directly to the savings account. The contributions made by family and friends may not be large sums; however, regardless of the amounts, any contribution can play a significant role in paying for your child’s college education.

Some Parents are Unaware of the Value that Scholarships Can Have

It is important not to discount how helpful qualifying for a scholarship can be in helping to pay for your child’s education. Many parents are unaware of the proper amount of these scholarships or underestimate scholarship amounts, leaving many scholarships unclaimed every year. Scholarships can make a massive difference in the amount you may have to pay for a college education and can be more effective than you realize.

Neglecting Savings Can Lead to Funding Gaps

As a parent, it is important to prioritize saving, as it can be extremely beneficial in accumulating enough funds to contribute to a college education. It may be difficult to prioritize saving when living on a tight budget; however, it is not impossible if you use proper financial management. Many parents make the mistake of prioritizing current expenses when both should take equal priority if they want to contribute to their child’s higher education.

College Costs Can Include Living Costs

The cost of living is an important factor when building a college savings fund. It often varies from one state to another or even from one college town to another, which can impact the overall expenses required to study in college. While saving for college, it is important to consider the cost of living as well because it determines the final costs of a college education.

There are Multiple Ways to Save for College

If you want to reduce the borrowing costs to fund a college education, you can adopt various strategies to help you lower the overall costs. You can encourage your children to earn college credits in high school, complete general education classes at a local community college with lower costs, or even take advantage of the federal student aid your child may qualify for. If these are not viable strategies for your situation, you can consider consulting a financial expert to guide you on ways to help you save more efficiently.

Part-time Work can Help Cover College Costs

If the savings you have accumulated over the years are not sufficient to cover the total costs of a college education, your children can consider taking up part-time jobs. Many college towns have part-time job opportunities for college students in the area, which may make finding a job easier. Your child can also consider working over the summer to increase their savings.

All Student Aid May Not be Equal

Students can get financial aid in four main ways: grants, scholarships, work-study programs, and loans. Your child must meet specific eligibility criteria for these different kinds of aid. Grants are usually given to students based on need, while scholarships can be more competitive or merit-based. Work-study programs granted by the federal government may only be on a need basis and are usually awarded through the FAFSA, which enables students to find part-time work.

Federal Loans Can Help to Lower Borrowing Costs

If your savings do not cover the total costs of college, you can consider taking up a federal loan at a lower cost because of the lower interest rates that usually come with federal loans. Federal loans also offer other kinds of benefits and repayment options that may not be given by private loans, making these loans much more beneficial. However, before agreeing to a loan, you must adequately assess your financial situation to determine your best action.

Rules and Fees for 529 Plans Differ in Every State

Knowing the varying fees and rules is essential if you use a 529 plan to make a savings account for your children’s future college education. The state you have your account in may charge higher fees but may have more flexible rules, which can be more beneficial for you. Knowing the varying fees and rules can help you determine the best course of action for your financial situation and how to accumulate your savings.

Only About 30% of Americans Use 529 Plans

Even though 529 plans have been designed to help you save money for your children’s future college education, offering a range of benefits towards your savings, very few Americans use these plans. These plans aim to help you save more at lower costs. Americans are not taking advantage of these accounts because they may not be aware of all the benefits that come with this plan or may not be aware of the existence of these plans.

Avoid Diving Into Your Child’s College Fund

If you are building a savings account to pay for your child’s college education, you must avoid diving into the savings as it can negatively impact all the effort you have put into saving. Instead, you can create a separate emergency fund to help you prevent using your child’s college savings to pay for unexpected emergencies. Having a separate emergency fund will ensure that you do not have to withdraw college savings regardless of the financial strain that you may face.

Financial Literacy Can Increase Your Savings

Proper financial literacy is important as you age because it can significantly impact how you save or spend money. Additionally, you can ensure that you teach your children about financial literacy so they can effectively manage their own finances once they are in college. A lack of financial literacy can easily lead to overspending because of improper money management.

Saving for College Requires Long-term Planning

Suppose you want to save up for your child’s college education. In that case, starting as early as possible is essential because it can significantly help you accumulate a substantial amount of the money you require to cover college expenses. It is essential to have a long-term perspective for saving. The earlier you start saving, the more you can accumulate. You can even consider building a savings account before you have children in preparation for the future.

Health Insurance Costs Can Increase College Expenses

Another important expense to account for when saving money for college is the health insurance costs that may be required. These costs can sometimes add thousands of dollars to the overall college expenses and, therefore, require accounting for when creating a college savings account. Many college institutions require their students to have health insurance as part of their overall fees, which may mean these costs cannot be avoided.

Some States Offer Payment Plans

Some states offer state-sponsored programs that can significantly contribute to covering the overall college expenses for students. These programs may include prepaid tuition plans that enable parents to lock in current tuition rates for college institutions in the state. This can help to combat the rising costs of tuition fees over the years and enable you to pay tuition fees at a much lower rate even if your child goes to college fifteen years from today.

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