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More than 44% of parents feel guilty about not saving enough for their child’s college costs, according to our recent survey on paying for college.
Whether you’re in that group or not, you probably feel some responsibility to help your child address the rising costs of college.
To lessen your family’s reliance on federal and private student loans, consider the following ways to start saving for college now. Feel free to skip ahead to the section that corresponds to your child’s age.
Up to age 5: Choose a savings plan and stick with it
Eighteen years might feel like there’s all the time in the world. As older parents can attest, the time will fly by.
To ensure your rambunxious tots eventually will have the money they need to afford college, choose the right savings vehicle. Apportioning your paycheck regularly could go a long way toward their cost of attendance.
Double-check IRS rules and guidelines before taking advantage of the following savings options:
- The 529 college savings plan: Contribute regularly and watch the tax-free account earn interest until your student withdraws it to attend any school nationwide.
- The 529 prepaid tuition plan: This plan allows you to pay a lump sum now to lock in today’s tuition rate for specific schools in specific states.
- Roth IRA: If you save money in a Roth IRA, the IRS allows you to withdraw from it tax-free for education costs. One downside: The Roth IRA contribution limit is based on your income.
- Investment account: This kind of savings account is subject to taxes, but it’ll give you the flexibility to use the money on noneducation expenses later on.
There are pros and cons of 529 accounts and other investment vehicles, but they’re better than a basic bank savings account. Even the best high-yield bank accounts offer interest rates of about 1.00%, which means you could be leaving thousands of dollars in interest on the table by not investing elsewhere.
Ages 5 to 15: Continue saving and begin the scholarship search
There are many myths about college scholarships, but let’s clear up one for now: Your child doesn’t have to (and shouldn’t wait) until the senior year of high school to start applying for college aid.
There are scholarships for recipients as young as 5 years old. Examples include Youth Service America’s Everyday Young Hero Awards and the Sodexo Stop Hunger Foundation’s Stephen J. Brady scholarship program.
You won’t find listings for such young children on scholarship-matching websites because they can’t collect information on anyone under the age of 13, thanks to the Children’s Online Privacy Protection Act.
The younger your child, the more heavy lifting you might need to do to take advantage of these opportunities. The older they are, the more you might have to encourage your kids to apply for scholarships.
Don’t worry if your family’s household income is too big to qualify for need-based scholarships. There are merit-based opportunities, too.
Depending on the scholarship, the amount might be put in escrow until your child enters their freshman year of college. It also could be added to your child’s 529 plan.
Age 16 and up: Fill out the FAFSA and start using calculators
The Free Application for Federal Student Aid (FAFSA) is your gateway to aid from the federal government, but it’s often required to apply for state grants as well as private scholarships. That’s because the form gives donors a sense of your financial need.
You and your high school student will have a year or more to complete the FAFSA, but it’s wise to file it as soon as possible. The application becomes available Oct. 1 every year. Parents and their high school kids typically start filling out the FAFSA during the fall semester of 12th grade, or senior year.
Even if your family has a high annual household income or has racked up a lot of 529 plan savings and scholarship awards, it’s always wise to complete the FAFSA, said Jill Desjean, a policy analyst for the National Association of Student Financial Aid Administrators.
Don’t wait until your high school senior receives college award letters to know the amount of aid you can expect to receive. Use the FAFSA4caster tool as well as net price calculators available on schools’ websites.
“Families can actually go in, punch in some basic information about their families, and get an instant return that tells them how much they might be able to receive at that school,” Desjean said.
Knowing how much aid your family can expect to receive will help you plan for any gap between your savings and the cost of attendance.
Before taking out a parent loan or cosigning a private student loan, look for ways to help without opening your wallet. You could encourage your children to search for summer internships or start a side hustle, for example.
You can help no matter how old your child is
Many Student Loan Hero users are parents watching out for college graduates who have a mountain of student loan debt. This column has tips to ensure you don’t follow in their footsteps because saving early always is a better way to pay for college than even the best private student loans.
The younger your child, the more control you have over saving for their future college costs. But even if your child is a high school senior, there’s something you can do to help them afford school, like pointing them to state grants for college.
If you have a student loan question you’ve been waiting for an answer to, contact our customer support team. Your question might end up in this column.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB) or Turnstile Capital Management, LLC (TCM), which are not affiliated entities. Certain restrictions and limitations may apply. Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. All loan products may not be available in certain jurisdictions. Other terms and conditions apply. Ascent is a federally registered trademark of TCM and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.69% – 10.94%1||Undergraduate, Graduate, and Parents||Visit CollegeAve|
|3.82% – 12.82%3||Undergraduate and Graduate||Visit Ascent|
|4.34% – 12.99%2||Undergraduate and Graduate||Visit Discover|
|4.12% – 10.98%*,4||Undergraduate and Graduate||Visit SallieMae|
|5.03% – 11.23%5||Undergraduate and Graduate||Visit PNC|
|3.88% – 12.88%6||Undergraduate and Graduate||Visit SunTrust|
|4.72% – 9.81%7||Undergraduate and Graduate||Visit LendKey|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents||Visit CommonBond|
|4.04% – 12.01%9||Undergraduate, Graduate, and Parents||Visit Citizens|