Getting your children on the path to college is just like all of life’s important endeavors – it takes some planning, good financial management and, probably most important of all, a commitment to achieving the goal.
All the information out there about the rising cost of college can make the task seem pretty daunting. But when it comes to funding college costs, understand that it can be done – with a proper mix of long-term saving and investing, prudent borrowing and financial aid.
You can’t really determine your precise borrowing and financial aid strategy until your children are in the thick of the college application process. But there’s lots you can do early on to get the right saving and investing approach in place, no matter what the ages of your children or your specific financial circumstances.
A challenging economic environment is putting considerable pressure on lending sources as well as schools’ financial aid resources. Uncertain times are a reminder that it’s critical for families with college dreams to have a strategy for maximizing their own college saving efforts.
Every good college savings strategy is all about the basics. Here are some useful principles to keep in mind:
Get started. It’s never too early – or too late – to put money away for college. Starting as early as you can makes the most sense – and gives your savings the greatest opportunity to grow. But don’t forget that no matter how old your children are, every dollar you save and invest on your own is one dollar less you’ll have to find via lending or financial aid. Any amount you save can make a difference – so get started, at whatever level you can afford.
Set a realistic goal. Your ultimate savings goal, naturally, will be shaped by the kinds of schools targeted by you and your student, and the funding you anticipate receiving from financial aid, loans and other outside sources. You’ll need to fine-tune this goal over time, and set your saving level accordingly. But if you’re just starting out, the most important principle is to set a regular – say, monthly – minimum savings objective that you can sustain over time. Consider this monthly savings objective a genuine commitment – just like all your other commitments – and faithfully meet it every month.
Learn about your savings program choices. There are more cost efficient, tax friendly savings options for college than ever before. Not every option will work for every family, so it’s smart to familiarize yourself with each of them – including Coverdell accounts, UGMA/UTMA accounts, and Section 529 college saving and pre-paid tuition plans. For many families, 529 plans are a good choice, allowing college savings to accumulate tax free and offering tax free withdrawals when plan assets are used for qualified education expenses. Many plans also offer an automatic investment feature that puts your monthly savings goal on auto-pilot.
Take advantage of all your funding options. Think about ways to gather college assets that don’t strain your own savings. For example, you can encourage grandparents and other family members to make contributions for college in place of other kinds of gifts. Many grandparents are finding that 529 plans, set up with grandkids as beneficiaries, are excellent devices for making such gifts. Another option worth exploring is the growing selection of credit cards that allow spenders to earn a contribution to a college savings plan.
Consider tapping professional guidance. Defining a college saving goal – and fitting it into a saving and investing strategy that meets all your important objectives – can be a challenging exercise. If you feel that you can’t do it on your own, don’t let the feeling impede your planning – many financial advisors are well versed in the intricacies of college saving, and will readily help you develop an effective approach. Ask family and friends for suggestions about advisors they’ve used, and don’t be shy about asking a prospective advisor for references. Among the many valuable services an advisor provides is support for sticking to your plan when market conditions are difficult – which leads to our final principle:
Stick to your plan. Effective saving and investing takes discipline – staying the course with your strategy over time and, in particular, not letting the market’s downturns discourage your efforts. It’s not easy – especially in the difficult markets we’ve experienced over the past year. But it’s the surest way to seek your college saving target.
A changing world – with fast evolving economies, markets and workforces – makes a solid post-high school education more valuable than ever. Giving your kids a great “launching pad” is worth all the effort you can muster.
The path to college isn’t simple. But there are plenty of straightforward steps that help make the challenge doable – and there’s no better time than now to get started.
Investments in 529 college savings plans are neither FDIC insured nor guaranteed and may lose value. Please note the plan's disclosure document includes details such as investment objectives, risks, charges and expenses, and other information that you should read and consider carefully before investing. You can obtain a copy of the plan document from each 529 plan sponsor.