As a parent to a six-year-old daughter and a four-year-old son, the thought of funding their future college costs scare me to death. Not only do I have to save up for me and my wife to retire with dignity, but I need to come up with six-figure sums for my kids to attend an in-state university.
And the cost of college is not getting any cheaper. According to a handy, yet depressing Sallie Mae calculator, my future college-bound daughter can expect to pay around $220,000 to attend my alma mater (Michigan State). Compare that to around $112,000 today. That’s about a 5% increase per year.
In order to give myself hope that my children can go to college debt-free and I can still keep my sanity, I decided to interview some parents who’ve cracked the code. Their inspiring words of wisdom have motivated me to modify my parenting and financial planning. Here are three student debt avoidance strategies I picked up that I’ll be considering before my young kids graduate high school.
Save in a 529 Early and Often
The easiest way to get a boatload of money for any future financial goal (retirement, vacation, wedding, etc.) is to develop a consistent savings strategy. The cost of college is no different.
By utilizing a tax-efficient college savings vehicle like a 529 plan, you’re putting your savings on a fast track.
With a 529 college savings plan, you can:
- Invest your post-tax savings into the market (similar to a Roth IRA)
- Take advantage of compound interest
- Realize state tax deductions (depending on your state)
- Have your earnings grow tax-free
- Withdraw your money tax and penalty free for approved college costs like tuition, books, laptops and many other expenses
To get started, you’ll need to research your state’s 529 plan. It may be a perfect fit for your specific needs and provide you with nice state income tax deductions on your contributions.
If your state’s plan has fees, funds and managers that aren’t floating your boat, you don’t have to invest in it. You can choose to invest in another state’s 529 plan, get the benefits that are ideal for your family and still have your kids attend eligible colleges in state, out of state and even some international programs.
Some new financial companies are jumping in to make the process easier as well. Companies like CollegeBacker claim to reduce the complexities of the 529 enrollment process and add a social element as well so Grandma and Grandpa can help your kids make it to college without loads of debt on their backs.
Instill Values of Saving and Contribution at Home
As our kids get older, we can continually provide them with opportunities to contribute to the well-being of our households. In other words, it’s okay to tell them to put the iPad down and take out the trash.
When our kids get used to a chore and reward system, they will start to make the connection that we need their help to make their lives the best they can be. It starts with little things like putting away clothes and vacuuming, but that sense of family-first contribution continues with bigger goals like college savings and scholarships.
If your kids are in elementary or middle school, part of their chore money can go toward college savings. You can even create a separate glass jar labeled “College” so they know that’s where the money is going. This way, you’re teaching your kids that they are a part of the college savings process and it’s not all just on Mom and Dad.
As they make their way toward high school, that is when the major monetary contribution can happen. If you’re serious about helping your kids avoid the student debt trap, try these tips:
- Contribute 10% of their after-school or weekend job income toward their 529 account
- Have your teens give back in their community and write about their experience in scholarship applications
- Invest in SAT/ACT prep courses so your kids can score scholarship money
- Consider AP classes during their high school years to reduce the amount of time they are in college
- Start honest and open money conversations early about the realities of in-state tuition versus out-of-state tuition
When we involve our children in the battle for their student debt freedom, the prospect of it can become a lot more real. It’s a family effort after all!
Consider Trade Schools or Community Colleges
If you’re getting a late start in saving for college or your kids aren’t contributing as much as you’d like to the overall financial challenge, trade schools or community colleges are not the end of the world. In fact, there are dozens of six-figure careers that your children can have without the pricey and illustrious university degree.
With the increased popularity of early retirement conversations lately, some white-collar workers who paid $100,000 for their university degree are now considering trade jobs as a way to break free from the “rat race.” Maybe we save our kids the headache, loans and confusion and let them pick a trade job to start with!
If a university degree is still a family goal of yours, consider a couple years of community college to pay for the general courses at a much lower rate. After your child has finished those starter credits (perhaps while living at home and saving some dough), then they can apply to the university of their dreams. Those two years in community college could potentially cut your total college expenses in half.
What other ways are you helping your kids prepare for the high cost of college? What do you think of the increasing tuition rates? Please let us know in the comments section below.
If so, subscribe now for tips on home, money, and life delivered straight to your inbox.