I am not a parent, but I know many who are. Specifically, I’ve witnessed people spend a lot of money planning for their baby’s arrival; however, they never opened an account to save for school.
While most parents say they can get a scholarship or financial aid, most students are not able to qualify for either. How do I know? I was in the same situation! My parents told me I had to go to college, but they only showed me how to pay for it without providing me any financial assistance.
In the nineties, when I walked across the stage to pick up my diploma, I had to figure out my life. My seventeen-year-old young self was scared, excited, and ready to leave my parents’ home. However, during that time, I did not know what to do. The school I attended did not help low-income families. Additionally, our counselors only helped students who were graduating in the top 10% of our class. Even though I maintained a 3.0 GPA, it wasn’t high enough to land me a scholarship. Moreover, I even applied for financial aid; however, after standing in long lines for hours, I learned my parents made too much money and all I could get were student loans.
Knowing what I know today, I would have gone to community college to take my basic classes and then transferred to a four-year university after two years. Unfortunately, student loans are a death trap that no student should fall into.
Besides, there are many ways to save money for college. In fact, saving does not require a lot to start, and anyone can contribute to the account. Yes, anyone! Meaning aunts, uncles, grandparents, friends, and godparents can add money to the account. Instead of having relatives buy Christmas and birthday gifts, have them put money into your child’s 529 account. While your child may not be too happy with this, the long-term benefit will outweigh the short-term pleasure from getting a toy that will eventually get lost or broken.
Before we move any further, let’s take a look at what a 529 account is:
- A 529 college savings plan is a state-sponsored investment plan that enables you to save money for a beneficiary and pay for educational
- You can withdraw funds tax-free to cover any type of college expense.
- 529 plans may offer additional state or federal tax benefits.
Facts you should know before you invest in a 529:
- The funds from a 529 college savings plan can pay for part or all of a student’s educational
- The sooner you invest, the more likely your 529 plan account will increase in value and grow. Additionally, you can open a 529 account as soon as your child or grandchild is born.
- You can defer federal taxes: state-level tax benefits vary and may depend on where the account owner and beneficiary reside (“in-state” vs. “out-of-state” plans).
- Carefully assess the fee structure of each 529 plan you are considering, as fees may impact earnings.
- Figure out whether you want to use your 529 account savings for undergraduate costs, graduate studies, or other eligible educational expenses. For instance, some states allow 529 plan assets to be used for K-12 tuition expenses. This means you can send your child to a private school!
Note: 529 accounts vary for each state
To learn more about a 529 please click here. Those living in Texas, can also click here to learn more.
At the end of the day, the average debt for college students is $40,000. That’s a lot of money to owe once your child graduates! Specifically, if you wanted to pay this back over 18-19 years, you’ll need to pay $2,222 a year, $185 a month, or $46.00 a week. With the compound interest of a 529 account, you won’t have to worry about debt or paying back loans. As you can see, the best gift you can give your child is a 529 account!
Be aware, be informed!