Parents with young children, here’s a non-controversial statement: your kids are probably going to go to college. Presently, about 70 percent of American high school graduates go on to enroll in a college or university. Even if those rates decline in the next 18 years (and there are signs that indicate they already are), the majority of eligible young adults will likely end up in some form of secondary education. And college – as you may have already heard – is expensive.
SavingforCollege.com estimates that by 2033, the cost of a four year degree from a private college will average approximately $323,900. A public, in-state university, meanwhile, will be a comparatively inexpensive $94,800.
Wherever your children end up, it will be costly. And while financial aid and student loans will almost certainly still be available, you may want to help defer some of those costs by setting aside money. If that’s the case, the first question you want to ask yourself is, “Am I ready to start building a college savings fund?”
Consider your priorities
Having a sizable college fund for your children to access would be great, of course, but should it be your priority? After all, there’s only so much money to go around and there are other financial concerns you may want to address first.
Debt – Do you have any high interest loans or credit card balances? Most savings accounts offer a relatively small yield, such that focusing on saving while carrying high interest balances could be a costly and impractical use of your available money. Depending on interest rates, it may also be a little counterproductive to build up your child’s college savings account before you’ve paid off your own student loans.
Retirement – Are you saving an adequate amount for retirement? Keep in mind, the gift of a free college education isn’t much of a gift at all if you run out of money during your senior years and your kids have to pick up the bill. Make sure your retirement savings are well on track and growing steadily before you start directing money towards a college savings account.
Emergencies – Unexpected setbacks can be financially devastating if you aren’t properly prepared. Try to build a cushion equal to approximately three to six months’ worth of income before turning your attention to a college fund.
Find a plan and stick to it
Once you’ve gotten all your financial ducks in a row, your next step should be identifying the type of savings plan that best meets your needs. You may want to work with a qualified financial planner to help you understand all of your options. Some of the most popular savings vehicles include 529 college savings plans, prepaid tuition plans, and education IRAs.
The earlier you start, the easier it becomes to build a sizable college fund, but always remember to keep your priorities in order. Good luck!