Most people are well aware that getting a college degree can be quite costly these days. Whether you’re attending a private school or state university, a junior college or even an online program, the expenses paid in tuition, books, and room and board can easily exceed the spending capacity of the average middle class family.
For this reason, the college savings process should be treated as one would treat a retirement savings plan. As soon as one gets a job it is prudent to start putting money aside for retirement. Similarly, as soon as one welcomes a new child into the world, it is smart to start saving for college.
Most parents don’t foot the bill for their children’s college attendance. Yet even if you are planning to one day pay even a percentage of the cost, doing so could go a long way towards helping your child avoid crushing debt loads in his or her early career. And even if this percentage is small, it’s important to start saving as early as possible.
Here are some college saving and planning tips to keep in mind when your child is born:
- Open a dedicated savings account. Just as one has an IRA or 401k specifically set aside for retirement, so too should a family have an account dedicated to college savings. Seek out a high yield savings account or a 529 plan, and then try to make regular contributions over a period of 18 years.
- Practice smart family planning. If the child born was your first, you and your spouse may already be looking ahead and planning for a brother or sister. If you are, you can someday secure tremendous financial aid and college tuition savings by having kids close in age – within three years of each other – so that they are both in school at the same time.
- Reduce your long-term net worth. On a similar note, financial aid awards can be further maximized by reducing your family’s long-term assessed net worth. This could entail putting the maximum contribution towards retirement accounts, since such accounts are often not considered in net worth calculations. It could also mean financing your mortgage so as to insure that you won’t own your home at the time your kids leave for college. This strategy can also help keep your net worth low.
- Ask for college contributions. When a child is born, the parents often find themselves showered with gifts from friends and family members. Instead of getting five pacifiers and needing to return three cribs, you can instead ask that relatives make a contribution towards the child’s recently-opened college savings fund.
These are just a few of the ways a family can start planning for college when their child is still an infant. Although college may feel like a lifetime away, you’ll be surprised how quickly time flies and how fast your kids grow up – and, in the process, how rapidly those education costs materialize if you do not have a plan.