Family budgets have been constrained the last several years due to the poor economy. While not much extra money may be coming in, parents still need to look to the future and try to save for a child’s college education. There are some strategies families with a limited budget should consider to set aside funds to help improve their child’s future.
Make A Plan
If there isn’t a lot of extra money that can be put aside for a future expense like college, then it’s unlikely enough will be saved to pay the full tuition. A combination of savings, future income and loans or financial aid will probably be necessary.
- Saving – Start as early in your child’s life as possible to give the account time to grow. Calculate how much can be set aside on a regular basis without impacting other expenses for the family and stick to that amount as much as possible.
- Education Plans – Ask a financial advisor about setting up a 529 plan, which is an investment-based educational savings account. The investment company manages the plan, but the beneficiaries set up the contribution amounts and maintain ultimate control. As long as the money is used for educational expenses it’s tax-free. There are also 529 pre-paid tuition plans in which a contract is drawn up between the parents and participating universities. The parents pay into an account at today’s rates and when the child reaches college age, the university agrees tuition is covered.
- Make It A Team Effort – When money is really tight, it may require a family team effort to save for college. There’s nothing wrong with asking your children to participate in saving once they reach an age where they can get a part-time job. Make a deal that a portion of their earnings will be added to the college fund and agree to at least match their donations.
- Home Equity – As time goes by and payments are made on the house, equity accumulates. This can be turned into a home equity line of credit which can be used to pay for college expenses.
There are a variety of sources available for financial assistance to help pay for a college education.
- Scholarships – Have your child talk to their guidance counselor about scholarships that may be available and research them online.
- Loans – The Federal Stafford Loan Program offers low-interest loans with payments that can be deferred until after graduation.
- Grants – If a grant can be secured it’s even better than a loan because they money does not need to be paid back. Examples include the Pell Grant program and the Federal Supplemental Educational Opportunity Grant, both of which are need-based.
Saving for your child’s college education can be hard to accomplish when other expenses are rising while income is not. When money is tight it requires additional planning and more than one strategy but it is an investment in your child’s future and is well worth the effort.
written by: Katherine Watkins