College Planning Tips

             If you have children, a college degree may well be part of your vision for their future. When it comes to graduating college, however, a large number of students who begin college do not actually complete their degrees –and it isn’t because they are lazy or lose interest. One of the biggest factors that keeps students from graduating college is the struggle to finance a college degree, particularly if they need to work part-time to pay for school.

According to the National Student Clearinghouse Research Center, an average of 42% of students who entered college in 2012 had still not earned a degree six years later. The unfortunate reality is that failing to complete a college degree doesn’t eliminate any debt you took on to pay for school. Instead, many college dropouts will find themselves burdened with debt for years and years to come, yet without the benefit of the higher-paying positions that often come along with a college degree. Given this reality, the sooner you begin saving for your child’s college education, the likelier it will be that he or she will have the money necessary to complete their degree –or at least enough breathing room to allow them to do so without taking on a mountain of debt they will be unlikely to ever pay off.

Even if you aren’t able to sock away tens of thousands of dollars each year towards your child’s education, the sooner you begin saving the better off they will be –as long as you approach saving wisely. The following are a few of the many important things to consider when saving for your child’s college education:

  • Once your child is old enough to start thinking about college, sit down with them and discuss whether they are interested in a private school or a public school. Talk about what you can truly afford/how much of an impact each option is likely to have on the amount they may have to borrow themselves in order to fund their education.
  • Keep in mind that college costs aren’t limited just to tuition, room and board, but also include books, transportation and any other day-to-day living expenses.
  • Simply putting money into a savings account is not only unlikely to yield enough money to make a significant dent in the cost of a college degree, it also increases the chances that money may be pulled out to deal with any unforeseen emergency expenses. That’s why 529 savings plans, which are essentially mutual funds earmarked for college tuition, are the most popular saving vehicle for college savings. Money put into 529 plans has the ability to grow on a tax-free basis–as long as it is ultimately used for “qualified education expenses.”
  • Depending on where you live, the money you invest in a 529 plan may make you eligible for a state income tax benefit or tax credit. More than 30 states currently provide such tax benefits.
  • Due to changes made as part of the Tax Cuts and Jobs Act, up to $10,000 of the money invested in a 529 college savings plan can now be used for students attending private high schools.
  • Universal life insurance policies have become another popular way of funding college, as such policies typically generate long-term returns in the range of 4% to 5% and allow the insured party to take tax-free loans against their insurance policies.
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