The Cost Of Not Starting To Save For College Early

A lot of people I know are having their first, maybe second child. Whether your child is a newborn, toddler, or teen—paying for college is a topic that will probably weigh heavily on you at some point.

Whatever you can put away now to pay for college costs in the coming years will help a lot. It may not seem that way when you consider the overwhelming cost. Average tuition and fees per year for a private university rang in at $35,830 for the 2018-19 school year according to the College Board. Avoid loans as much as possible by getting started today! (We can help you select the best 529 plan and saving strategy for your child or grandchild today!)

No one wants a child to graduate college and be forced to shoulder a mountain of debt from the start, so it is important to be prepared for college expenses as early on as possible. The alternative is to risk taking on debt that could jeopardize not only your children's futures, but yours as well.

If you aren't already, start putting away as much as you can for tuition costs. Even if your child is already a tween or teenager, it's not too late. Painful as it can be to save large sums, it will cost you less in the long run than borrowing.

You can make your savings go further by taking advantage of tax breaks on tuition savings with options such as 529 plans and Coverdell Education Savings Accounts.

Nearly every state offers at least one 529 plan. Earnings grow tax-deferred and withdrawals are free from federal income tax if you use them for qualified education expenses, which now includes up to $10,000 annually for K through 12 tuition expenses. Many states also offer tax incentives, including tax deductions for contributions and tax-exempt withdrawals.

There’s no guarantee that your child will receive enough in grants or financial aid to cover any shortfall you may have. Unfortunately, the majority of student aid comes in the form of loans. When you're counting on financial aid, you're really relying on borrowing for education costs—not scholarships and grants, which are harder to obtain.

Many parents also worry that a big college fund will decrease the family's chance for financial aid. But, for the most part, it's better to prepare for giant costs like tuition than to count on something that isn’t guaranteed.

You can bolster your family's chances of qualifying for financial aid if you save in the right types of accounts. When the federal financial aid formula assesses how much a family should contribute to college costs, it looks at what both the parent and child have saved for education costs and evaluates those amounts differently. Money saved in the child's name is assessed at a 20 percent rate, whereas money saved in the parent's name, which often is the case for 529 and Coverdell accounts, is assessed at a much lower rate of up to 5.6 percent. So, every $10,000 saved in your child's name would be seen as a $2,000 contribution to college costs. That same $10,000 saved in your name would be viewed as only a $560 contribution.