Could your child go debt-free?
Student loan debt is weighing on many young adults these days. So, if you have a child who is approaching college age, you may be wondering how to minimize or even eliminate student debt in their lives. Can your child go to college debt-free? This may be more realistic than you think—especially if you start planning early and rely on some of the saving strategies below.
Open a 529 Plan
The best way to save for college is by opening a 529 plan. This is a tax-advantaged savings plan that you can open on behalf of your child. You do not pay tax on the earnings as long as they are used toward tuition and other college-related expenses. Each state has its own 529 plan.
When should you start saving for college in a 529 plan? The simplest answer is "as soon as you are able." If you start saving early, when your child is still young, you will have the benefit of compound interest working in your favor. In other words, the interest you earn on the money you initially invest will earn interest, and then that interest will earn more interest, and so forth.
Ask Your Child to Help Save
If you want to be able to cover your child's college costs completely, then you'll need to save a substantial amount of money by the time they are 18. For instance, as of 2020, the average cost of attending an in-state, public college is $107,280 over four years. Keep in mind that your 529 plan will earn interest, so this does not mean you'll necessarily have to save $107, 280. There are online calculators you can use to more precisely calculate how much you need to save.
One way to help increase the amount you're able to set aside is to ask your child to help with paying for college. Once they are 16, encourage them to get a part-time job. Not only will they gain work experience, but they should be able to help contribute at least a few hundred dollars per month to their college savings, and this can add up quickly.
Apply for Grants and Scholarships
There are so many grants and scholarships available, and many of them go unclaimed because students simply don't apply. When your child is in high school, have them ask their guidance counselor for a list of scholarships they can apply to. You can also do some research online to find additional scholarships.
If your child spends just 5 hours a week applying for scholarships throughout their senior year, and they receive $10,000 in scholarships—which is a reasonable estimate—that's a pay rate of about $38 an hour, all put towards paying for college! Note that scholarships are not only awarded to the highest-achieving students, either. There are scholarships for students with certain artistic interests, those for students who play certain sports, and so forth.
Consider State Schools and Community Colleges
Finally, if you want your child to graduate without debt, then you need to consider the cost of attendance at various schools. State school tuition is a small fraction of the cost of tuition at private schools. Some students are also able to keep costs down by attending a community college for two years before going on to a 4-year university. Know your budget, and ask your child to stay within it when choosing a school.
Paying for college for your child will help them start off on the right foot without student debt. Follow the tips above, and start saving as early as you can.
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