As college costs increase, it can be intimidating to find ways to save up for your child's education. Many parents know that they need to start saving money early, but they might not know where to start or how to start. Children are not cheap. One of the most expensive parts of raising a child is the college education.
Increasing College Costs
Although inflation in the United States has stayed relatively low, the inflation rate for college has more than doubled. Inflation for college costs averages between 3 and 7 percent each year, depending on the type of college or university.
The estimated four-year total (including tuition, room, and board) for a public university will be close to $85,000 by the year 2011, according to collegeboard.com. By 2016, the website estimates, the cost will be close to $115,000. The cost for a private education will be even higher.
What Parents Must Understand
There are two key things that parents must understand when saving for college educations.
1. Inform your children that paying for college is a joint responsibility. You should tell them early on how much you are able to contribute, and how much they should be prepared to contribute for their educations.
Although it would be wonderful if they can find a college that costs less or equal to what you are able to contribute, your children should be aware that they may need to take out scholarships and loans to fund the rest of their education. Your children should be prepared to take summer jobs and look for grants.
2. Get started early. Let compounding interest work for you by building principle early and let the interest accumulate. You should continue to contribute to the savings if possible, but starting early will give you a good head start.
Funding Your Student's Education
Don't expect to be able to rely on scholarships and grants to pay for your children's educational costs. You will need to save some money to help pay for your child's college education or consolidate with debt consolidation loans
As you begin the process of saving for college, you need to first decide what kinds of accounts you would like to use for saving the money. There are various options available to parents and relatives.
Uniform Gift to Minors account: This account puts the savings in your child's name. You, the parent, have no ownership rights to the account but will control the account until your child comes of age. This means that you will control the account until your child usually turns either 18 or 21, depending on your state.
Coverdell Education Savings Account (CSEA): Parents who qualify for this account - those families with gross income below $190,000 - are allowed to contribute up to $2,000 per child per year. The contribution isn't tax deductible but the earnings are tax deferred.
State-Sponsored Prepaid tuition Plan: These plans promise that your investment in the plan will cover tuition at any public school in your state. It will not matter what the tuition is for the school when your child enrolls; the price is locked in when you make your investment.
State-Sponsored College Savings Plans: Individual states have these plans, but do not require the parent or student to be a resident of the state or attend college in the state. You can find more information about the 529 plans at collegesavings.org
Traditional Methods: You can save for your child's education in a variety of accounts. These accounts can include basic savings accounts, investment opportunities, and annuities.
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