Group of college students sitting in the library and using wireless technology. Man is using digital tablet while women are using cell phone. The view is through glass.

In 1971, the average cost of tuition (in current U.S. dollars) was just under $500 at a public university and $1,832 for a private university. Compare that to $9,139 and $31,231, respectively, in 2016 and you see why it’s getting harder for parents to send their kids off to college.

Despite the rising costs, findings show millennial college graduates are earning, per year, about $17,500 more than employed young adults holding only a high school diploma. Knowing this, many parents back themselves into a financial corner to make sure their kids can go to college.

While college is a good way to set them up for success, there are many ways to do so without breaking the bank.

529 Plans

In 1996, 529 plans were established to encourage saving for future college costs through tax-based incentives. All 50 states offer 529 plans, but each state has its own specific tax incentives on top of federal ones. With these plans, money is put into a fund and invested through one of the options your state offers.

Earnings from these investments grow free from federal taxes and are not federally taxed when the money is taken out to pay for college. If the money is taken out for non-college expenses, it will be taxed.

There are two types of 529 plans: Prepaid Tuition Plan and College Savings Plan, but not all states offer both options. It is important to find out which option is offered in your state and fully understand its benefits.

Here is how the U.S. Securities and Exchange Commission breaks down the two plans:

Prepaid Tuition

  • Locks in tuition prices at eligible public/private universities and colleges
  • Most plans are guaranteed or backed by the state
  • Covers tuition and mandatory fees only
  • Imposes age/grade limit for beneficiary
  • Requires owner or beneficiary to be state resident
  • Has a limited enrollment period

College Savings Plans

  • Imposes no lock on college costs
  • Has no state guarantee; subject to market risk
  • Covers tuition, room and board, mandatory fees, books and computers
  • Has no age limit; open to adults and children
  • Has no residency requirements (may have to go through financial advisors or brokers)
  • Enrollment is open all year
  • Has a contribution limit in excess of $200,000

To open a 529 account, you can go directly through your state’s website or through a financial advisor.

Mortgage Refinance

As mortgage rates remain low, refinancing is an option that can save homeowners a lot of money. Refinancing to lower monthly payments or to pay off your mortgage faster will help you save for your child’s education.

Depending on your long-term goals and current financial situation, a custom-term mortgage may make sense. You have the option to take a new loan out for anywhere between 8 – 30 years.

For example, if you have 20 years left on your current loan but are not willing to hit the reset button and start again with a 30-year fixed but still want to be on pace for your financial goals, this might be a good option for you. In the long run, this option will save you more money than paying off the loan over an extended period of time.

Once it is paid off, you’ll no longer have to worry about a monthly mortgage payment. You can take the money freed up by lowering your payment and invest it into a 529 plan.

If you are interested in refinancing, get started today by contacting one of our Home Loan Experts.

Fidelity Reward Cards

Similar to credit cards that offer cash back and frequent flyer miles, you can open a rewards card to save for college. Through Visa, Fidelity offers a reward card that ties back into a 529 account you have set up with them.

The card offers 2% cash back on purchases, which is deposited into your Fidelity investment account automatically. Another perk is loved ones can link their cards to fund the 529 account as well.

If you choose to get a credit card, make sure to spend in a manner where you can pay the entire bill every month. Don’t put yourself into credit card debt in an effort to save for a college fund.

Moving Forward

Saving for college will take time, but it’s a goal that can be achieved. The keys to success are to start saving early and to save smart. Review all your options to see what works best for you!

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This Post Has 3 Comments

  1. College is expensive. Really, really expensive . And with the economy still struggling, it can be hard to scramble together $30,000 a year — or, likely, more — to pay for it.

  2. Vinnie, your discussion of prepaid tuition in this column contains a glaring omission – a national plan owned by more than 280 private colleges and universities. Private College 529 Plan, of which I am president, allows families to buy future tuition at any member school at today’s prices. The schools guarantee the prepaid tuition no matter how much tuition increases or what happens in the stock market, so our account owners are protected from market downturns. Furthermore, families pay no fees. Member schools cover the costs. It carries that same federal tax benefits as state 529 plans. This is a good option for families who may want to look beyond their own state schools for prepaid tuition.

    1. Hi Nancy:

      This is good feedback that we appreciate your sharing with our readers. We’ll keep this in mind when we write college tuition articles in the future. Have a great day!

      Thanks,
      Kevin Graham

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