Want to Help Pay for your Child’s College Tuition? Follow These 4 Steps
We are in a new day and age where college tuition is rising uncontrollably, and student loan debt is reaching an all-time high year over year with no direct plan in sight. We are now at a point where college tuition is increasing so much, students are diving in head first to pull out student loans which continues to add on to the student loan epidemic. According to Student Loan Hero, the average student loan debt for Class of 2017 graduates was $39,400. This dollar figure is up six percent from the previous year. In this blog, we will be sharing 4 steps you should be following in order to successfully save and help your child with college tuition so they are not as affected by this national trend.
General Student Loan Debt Facts
Below is a general picture of what the student loan debt landscape looks like:
- $1.48 trillion in total U.S. student loan debt
- 44.2 million Americans with student loan debt
- Student loan delinquency rate of 11.2% (90+ days delinquent or in default)
- Average monthly student loan payment (for borrower aged 20 to 30 years): $351
- Median monthly student loan payment (for borrower aged 20 to 30 years): $203
(Data provided via federalreserve.gov, WSJ, newyorkfed.org, and clevelandfed.org)
Although I do not currently have any children, I have spent countless hours studying the tools that are available for society to take advantage of. I know I certainly don’t want my future children having to carry around decades of student loans because they had $80,000 in student debt. Below are 4 steps to follow to make sure your child isn’t part of the statistics listed above.
- Pay Yourself First — Often times, parents want to help their children so much they put some of their personal goals and finances to the side or at risk. As a parent, you always want to make sure to pay yourself first, meaning, placing money aside into a 401k, Roth, or IRA account which are all forms of a retirement investing account. If your job has a company match, at least invest the minimum to receive the company match. That is free money that your company is giving you that you should be taking advantage of.
2. 529 Savings Plan — A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. By doing so, you will receive a tax break as long as the money is used after high school. It could be used for a two-year college, four-year university, public or private, and on different types trade schools. A 529 plan allows you to invest the money typically in a fund or ETF, so it can grow over time. Investing in a 529 plan may offer college savers special tax benefits. You should make sure you understand the tax implications of investing in a 529 plan and consider whether to consult a tax adviser. The tax implications vary from state to state.
3. Invest in Academics — Create a habit to embed how important education is to your children. Explain how it can impact their future and how it can also help pay for college, and in some cases pay for all college expenses. You can even run a small analysis with your children to get their brains working and show them how much MORE money they can have if they were debt free, or had a small balance after graduating college. You can also include the opposing side to having a hefty student loan bill each month to show them the dramatic differences in their finances.
As a parent, make sure to stay active in their schools and try to build a relationship with every teacher they have. All of these steps will benefit them in the long run.
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4. Don’t Forget About your Kids’ Contributions — This step is very important. As a parent, you should be factoring in what your children can bring to the table. It is never too early for this step. This includes allowance, birthdays, holidays, and potential part-time jobs. This is not saying to seize all your kids’ money to add it to their college fund. This is saying that you should be teaching your children about saving from a very young age. It should be a habit for them to put a small amount aside every time they receive a source of income.
If they start putting money aside in a 529 savings account from a young age, they will have time on their side and their money would double alone from compound interest by the time they go to college. This creates money management, personal finance, and introductory to investing skills. As your children get older, you can start going over their 529 Savings Plan portfolio with them to show them how it is performing year over year. They will be very surprised to see how putting away $5 here and there has grown over a period of time and they will appreciate the power of investing, patience, and discipline they had to get to that point.
It is pivotal to do as much research as you can, and use all the tools available to your family in order to mitigate your child from being another victim of graduating college with $30,000+ in student loan debt.
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