Next to saving for retirement, saving for your child’s college education is one of the biggest planned financial undertakings in life. We attempted to keep this article light and fun, but the bottom line is saving for college isn’t really fun. College tuition is expensive. The average student graduates from college with more than $37,000 in loan debt.
There are several good ways to set up college savings plans. Some of these options have eligibility requirements but using a variety of saving accounts can provide more opportunities to maximize savings:
- The Alfond Grant: The Harold Alfond College Challenge provides Maine families with a jump start towards college savings. Babies born after January 1, 2013 automatically receive a $500 contribution towards a NextGen account. Additional investment opportunities exist within the Harold Alfond College Challenge, which include matching contributions up to $300 per calendar year.
- Educational Savings Account (ESA)- This type of account earns a much higher rate of return than a regular savings account and interest earned is tax free when the money is withdrawn for educational expenses. There is an income limit to qualify and contributions are limited to $2,000 annually.
- 529 Plan – This type of educational account allows you to choose how your contributions are invested. There are no income restrictions and the contribution limits are higher. A 529 fund may be transferrable to another child. There are some restrictions on how and when the funds are used.
Get Your Kid Involved!
The process of applying to colleges and taking the next step towards adulthood is exciting and stressful. It’s easy to get caught up in the “dream school” and not fully appreciate the actual cost of a college education. Get them involved in the process of saving for college tuition and consider all the options available to reduce the cost of tuition.
- Apply for Scholarships: Scholarships award free money that doesn’t need to be paid back. There are scholarships for all kinds of unique situations. Your child should apply for any and all scholarships. Check it out and apply!
- Take AP Classes: Advanced Placement (AP) classes allow high school students to earn college credits while they are still in high school. Their guidance counselor should be able to provide information on available classes.
- Get a job: Whether full or part-time, any earnings your child can save will not only reduce their overall college debt but will also provide work experience to include on a resume.
- Savings Account: Set up a student savings account that offers no fees or minimum balance.
Providing your child with the opportunity to go to college and graduate without a lot of debt is a goal for many parents. Life sometimes gets in the way of the best intentions to save. Talk to your kids about the importance of saving for college and the ramifications of starting their adult life with a lot of college loan debt. Work together and devise a plan that will result in the maximum amount of savings for college.