College grads are burdened with more student debt than ever before. Sixty-nine percent of 2018 graduates took out student loans to help cover the bill, and their average debt came in at $29,800. Millennial borrowers have been particularly burned by the cost of college; so much so that 46% say they don’t want their kids to have to take out student loans. The upside is that parents have perhaps never been more motivated to get ahead of their kids’ college funds. In addition to scholarships and grants, here are five expert-backed ways to help your kids prepare for college without student loans.
5 ways to help your kids avoid student loans
Kick into a 529 savings plan. When it comes to bulking up your kids’ college funds — and cutting your dependency on student loans — the 529 is far and away your best option. This savings plan allows you to put away money for college that will grow tax-free. You also won’t be hit with taxes when the time comes to cash in.
“If there’s anything I can stress to parents, it’s the earlier [you start contributing] the better because the longer you have the money in there to compound is a tremendous advantage to you as a parent,” said Paul Sydlansky, a certified financial planner and founder of Lake Road Advisors. “If you have the ability to put a large lump sum in when the child is born, that’s going to make such a larger difference than playing catch up.”
Even if you’re coming late to the game here, the time to start saving is always now. The money you put into a 529 plan can be used for a number of qualifying education expenses like tuition, books, and room and board. And if your child ends up getting a scholarship, that money isn’t lost. Sydlansky said you can either put their 529 account into another child’s name or pay a 10% penalty on the growth and take back the money.
These types of college savings plans vary from state to state, but some states offer an additional tax benefit. In Arkansas, for example, a portion of 529 contributions are tax-deductible.
Make college savings a priority. Your young child’s college life is kind of like your own retirement; you know it’ll come someday, but it probably feels like a million years away. Melissa Sotudeh, a certified financial planner and director of advisory services at Halpern Financial, said the best way to get into the habit of saving is to make it a line item on your monthly budget. This helps take the intimidation out of such a big financial goal.
“One thing I always remind people is that when you’re saving a dollar amount for any particular goal, always look at trying to increase that by just a small amount periodically,” Sotudeh said.
If money’s tight, you may initially only be able to kick in $25 a month. As you gradually get on more solid financial ground, try increasing your contributions little by little. Automating your efforts also makes college savings a set-it-and-forget-it affair.
“At $25 a month, you’re definitely not going to be able to cover all four years of even a state school, but what you might have is an amount that will bring even a reasonably priced university into the realm of possibility, and lower what potentially the student might have to borrow,” added Sotudeh.
Keep your nest egg out of the equation. It may be tempting to use your retirement fund to pay for your kids’ college, but it’ll cost you. Not only will you pay taxes and a 10% penalty for tapping your 401(k) before age 59½, you’ll also be robbing yourself of future returns.
“Honestly, that’s an awful idea,” warned Sydlansky. “As much as you love your children and want to do right for them and give them opportunities, the bottom line is you can borrow for your child’s college, but you can’t borrow for your own retirement; no one’s going to lend you money at 75 years old when you need money to live.”
Ask family and friends to contribute. When holidays and birthdays roll around every year, don’t be afraid to invite family and friends to play a role in your child’s future.
“What I’m seeing now is people setting up these  accounts, then alerting families at gift-giving occasions that they can contribute directly to the plans,” said Sotudeh.
It’s something your child will be grateful for come high school graduation. The ultimate savings goal, according to Sotudeh, is roughly 80% of estimated college costs.
Encourage your child to participate in the process. Teaching your children personal finance basics is never a bad idea. A 2016 Council for Economic Education study found that students who graduated high school in states that mandated financial education were more likely to have higher credit scores at age 22.
Borrowing money for college is a decision that could have lifelong repercussions for your child. Sydlansky recommended sitting down together and mapping out the average salary for their anticipated career path. Once they’re out of school and paying back their student loans, how much will they realistically have left over every month? It’s an exercise that may help motivate your child to participate in the college savings process. This may translate into a work-study program or after-school job to help supplement college costs.
Most important things to remember
College isn’t free, but saving for it doesn’t have to come at the expense of your own financial well-being. The tried-and-true 529 plan is your best bet for tax-efficient growth over the long haul. Make it a priority by kicking in whatever you can as early as possible. And don’t be afraid to enlist your child, along with family and friends, to participate along the way.
Interested in refinancing student loans?Here are the top 6 lenders of 2019!
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1 Important Disclosures for SoFi.
2 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.50% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.49% APR (with Auto Pay) to 7.27% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 17, 2019, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/17/2019. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
3 Important Disclosures for Laurel Road.
Laurel Road Disclosures
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the fixed rate will decrease by 0.25%, and will increase back up to the regular fixed interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
All credit products are subject to credit approval.
Laurel Road began originating student loans in 2013 and has since helped thousands of professionals with undergraduate and postgraduate degrees consolidate and refinance more than $4 billion in federal and private school loans. Laurel Road also offers a suite of online graduate school loan products and personal loans that help simplify lending through customized technology and personalized service. In April 2019, Laurel Road was acquired by KeyBank, one of the nation’s largest bank-based financial services companies. Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. All loans are provided by KeyBank National Association, a nationally chartered bank. Member FDIC. For more information, visit www.laurelroad.com.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.48% effective April 10, 2019.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.49% – 7.27%1||Undergrad & Graduate|
|2.49% – 6.65%3||Undergrad & Graduate|
|2.49% – 7.41%4||Undergrad & Graduate|
|2.50% – 6.65%2||Undergrad & Graduate|
|2.49% – 7.11%5||Undergrad & Graduate|
|2.98% – 9.72%6||Undergrad & Graduate|