The cost of a college education appears to always go up.
This is especially true when compared to the flat or even drooping inflation-adjusted income of most Americans.
If you’re a parent, and especially if your kid is young, here are 5 effective tips (plus a bonus one) that will help put your kid through college without breaking the bank or taking on enormous student-loan debt.
Tip 1: Start Saving For College ASAP
I’ve been there, so I know this is not easy to do!
If you’re a young parent, you may be facing the double crunch of an insufficient income and high child-raising expenses.
Still, I’m sure you can find a way to squeeze out of your budget at least $25 a month, right? That’s the minimum regular investment required (for example) by T. Rowe Price’s Maryland College Investment Plan. If you get an average 7%/year investment return, that $25/month investment could build up to over $10k in the course of 18 years!
That’s enough to cover in-state tuition even at Maryland’s flagship University of Maryland, College Park.
Start at $50/month and increase that by 5% each year, and by the time Junior’s ready to attend college, your college savings balance may be over $31k!
That’s almost enough for the full cost of attendance for a year and a half at UMD.
Double that to $100/month, increasing by 5%/year and you should get to almost $63k – almost 3 years’ worth of the full cost of attendance at UMD.
Tip 2: Use A 529 Plan
This is a special, tax-advantaged way to save and invest for college.
Depending on the details of your state’s tax laws and which 529 plan you use, you should be able to save on your state and local taxes in the year you contribute. You’ll also avoid paying federal income tax on investment returns in the plan if you use the money for qualified educational expenses such as tuition.
Note that there are significant penalties for using the money for non-qualified expenses, so you may want to consider how much you want to place in the 529 plan and how much in a taxable account.
Tip 3: Temper Your Kid’s Expectations
When my two younger kids were tweens, their mother and I told them we'd cover their full cost of attendance, but only for 4 years at the cost level of in-state students at UMD.
We told them they’d be free to choose any other school, public or private, and that they could take as long as they wanted or needed to graduate. It’s just that the cost beyond 4 years at UMD would be their responsibility.
When the time came, they both chose to attend the University of Maryland. As a result, they both graduated owing $0 in student-loan debt.
Tip 4: Encourage Academic Excellence In High School
There are many good reasons to encourage your kids to excel in high school. One significant one is that high-achieving students become eligible for merit-based scholarships. This saved us almost $100k on our kids’ education.
Tip 5: Encourage Graduation In 4 Years
Almost 3 in 5 undergraduate students take 6 years to graduate from college.
Having graduated with a double major in math and physics in 3 years, I see this as a combined failure on the part of schools, students, and their parents.
As I alluded to above, my two younger kids both graduated in 4 years (the youngest is still in school, so we'll have to wait and see if we have a clean sweep here :)).
It was the encouragement they received from their mother and me that helped them do so. On their path to achieving it, they:
- Took classes at a community college during high school and transferred those credits to UMD.
- Took more classes than the minimum required (when they could).
- Managed the level of difficulty of classes they took (not taking too many hard courses at once).
- Took advantage of summer and winter terms when needed.
- Took advantage of instructor and teaching assistant help when needed.
Bonus Tip: Encourage Your Kid To Work During School
We encouraged all our kids to work part-time during terms (no more than 10 hours/week), and full-time during breaks.
This was for multiple reasons, not least of which was to build the habit and appreciation for the importance of being productive. It also helped build their resumes, and for at least one of them, it led to a first full-time, industry-relevant job straight out of college.
We told them that what they earned during school terms was theirs to spend as they chose, but what they earned during breaks would be used toward their cost of attendance. This included, for example, rent and/or food they wanted to order in during school.
The logic was that the work they took on during terms was the equivalent of working overtime, but work during breaks was just them working like we did to help cover the family’s financial obligations. They accepted that it didn’t make sense that they could laze around for months on end while we worked full-time-plus to pay for their education.
The Bottom Line
Yes, college is ever more expensive. However, the above tips can help you cover your kid’s higher education without breaking you financially, and while minimizing any student-loan debt he or she needs to incur.
Financial strategy is all about setting financial goals, crafting a plan to reach them, and doing what's needed to start implementing that plan in both your business and personal life. Figuring out how to avoid over-spending on your kids' education is a major part of financial strategy. If you'd like to learn what financial strategy can help you accomplish, email me and we'll coordinate a free, no-strings-attached phone call to explore that.
This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any major financial decisions.