Less than 30% of college students graduate debt free. This causes a delay in creating financial stability. Making it a goal to start saving as much as possible will leave the college graduate at an advantage when they receive their diploma.
When is a Good Time to Start Saving for College?
The time to start saving for college is now! As cliche as it sounds, its true. The earlier you start saving for college, the easier and less stressful it will be. This applies to ANYONE, whether it’s for your child’s education or yours!
Did you know, “the average college graduate’s student loan debt is at a whopping $37,172,” (Dave Ramsey)? If you can save only $2000 a year for eighteen years, you will be able to save $36,000 alone!
How to Start Saving for College
When putting aside savings for tuition, don’t neglect your other savings objectives! It’s best to start saving after you paid down other debts, such as credit card bills. Additionally, another good thing to do is set up an emergency fund. (Dave Ramsey).
After those are done, it is time to save! The three main tax-favored plans to assist with saving for college are listed below. Some people may opt to save college funds in one of the plans because there can be tax advantages rather than saving in your normal bank account.
Education Savings Account (ESA)
This type of account offers a variety of investment options and grows tax free. ESA account holders are also likely to get a higher rate of return than one would using a regular savings account. One downside is the yearly contribution limit is $2000.
This plan is useful if one wants to save more than the $2000 limit per year. A 529 also grows tax free and has less restrictions. You are also able to transfer funds from one child to another.
These accounts can be used to give a child money that doesn’t need to be spent solely on education. It can be money for living expenses to a down payment, but must benefit the child. Unfortunately, parents can not monitor or restrict how the funds are used. Besides that, these accounts are helpful to children who might not take the college route.
Bottomline is, save as much as you can early on! No matter what stage you are in life, there is a way to save for school.