Before my sons were born, my husband and I started saving for their college education. In Maryland, where we used to live, you could open a 529 Savings Plan under your name and transfer it to any family member as soon as they received a social security number.
We started saving early because we are determined for our children to have a different college experience than we did. I worked two jobs while I was a student until I got a scholarship to cover all my expenses.
My husband went to a less expensive university but still had to take out student loans to pay for his education. Both of us qualified for financial aid.
However, because we earn a higher income than our parents ever did, the likelihood that our children will qualify for financial assistance is slim. My children will either get academic or merit scholarships, take out private loans or depend on us to pay for college.
Since the average student has at least $22,600 in student loan debt, saving for college is critical to our children’s ability to avoid student loans.
My husband and I are not promising to write a blank check, but we are saving so we can contribute something to our children’s college education. We hope our boys will get into the best schools.
Yet, where they decide to go will be based on several factors including the programs offered, the scholarships received and the overall cost.
Saving now will help your children get a college education without the stress of student loan debt. This article provides multiple options on how you and your family can save for your children’s education.
Fortunately, there are several ways to save and saving has become more fun thanks to technology.
Using a 529 Plan to Save For College
A 529 Plan is a college savings account that also offers tax deductions if you invest in your state’s plan.
However, if the tax perks are not an incentive for you or if your state has a poor plan, it may be worth investing in another state’s plan.
Some states offer more diverse investment portfolios and several savings plan options.
For example, the Maryland Plan allows you to prepay for a Maryland public school or you can contribute to an investment account and use that money to pay for your child to attend any U.S. college or university.
The best part is when you save with a 529 Plan you earn interest. So each contribution you make is boosted by the interest paid by the 529 Plan. This interest, when saved over time, helps you save more money.
A college savings calculator can help you estimate how much your monthly payment will grow over 18 years of savings.
When evaluating 529 Plans, it’s important to look at the investment funds and the companies that manage them. Don’t forget to review the fees as well. Here is a list of the top 529 plans in the United States.
Early Tools I Used to Start Our Child’s College Fund
I’ve had my family contribute to my child’s college fund for years. Before there were nice automated tools, we began with the basics.
Cash & Checks
I set up monthly contributions when I opened a 529 savings account for my oldest son. However, to encourage family member contributions, the company would send me forms in the mail where I could submit checks received from family and friends and apply them towards my child’s college fund. But, checks are such a thing of the past.
So until each of my sons was five years old, all financial gifts from family members went into my bank account. Then I electronically transferred the money from my bank account to their college savings funds. Back then, only I could make direct contributions.
I decided to put cash gifts towards college savings because my boys had enough toys to last a lifetime. I knew the college fund contributions would pay dividends—literally, in the future.
I told anyone who really wanted them to have a new toy to buy it themselves instead of giving money, because all that money was going straight to college!
My dad also ended up giving my children U.S. Savings Bonds. These are U.S. government issued bonds that pay on average 1-2 percent interest.
Bonds used to be a nice gift that earned interest, but they were not exclusively used to save for college.
In the past, you actually received a bond certificate, which you had to keep in a safe place. When you were ready to spend it, you had to exchange the bond for cash at a bank .
Today, you no longer have to keep up with a savings bond. All bonds are electronic and you can keep track of the interest earned in your personal Treasury account. When you want to cash them, you redeem them online and the money is transferred to your bank account in a few days.
You can buy two types of savings bonds–Series EE and Series I. EE bonds have a fixed interest rate and double after 20 years; I bonds have a fixed rate and variable rate to keep up with inflation.
Plus, you can buy a bond for as little as $25. Some employers also allow you to take a portion of your paycheck and use it to buy bonds. So through payroll deductions, you can save a little over time, which adds up.
With advancements in technology and more companies getting into the college savings business, you can give in so many ways, including by sending your friends and family a link where they can deposit money themselves.
Make Saving a Family Affair
The Gift of Education is a savings tool that helps your friends and family contribute to your child’s existing 529 Plan, checking or savings account. Opening an account and setting up your child’s profile with TGOE is free.
Then, they provide you a link you can share with family or friends to accept gifts. The company notifies you when deposits are made and helps you send thank you emails to gift givers.
Then you sit back and watch the money grow. You can also strategically send out the link to encourage family and friends to give for your child’s birthday, graduation or straight-A report card.
Although you don’t have to pay TGOE to set up an account, the company takes a portion of the monetary gifts your child receives. They take a 2.9 percent of every gift and charge the gift giver a flat fee of $2.30. Family and friends can donate an unlimited amount of money, but all money received must come from U.S. banks.
Upromise is another online platform that provides members with education about paying for college and the tools to save. They also offer a credit card that pays cash back on purchases, while also allowing you to round up your purchases to the nearest dollar.
The roundups and cash back become more earnings for you. If you link a 529 college savings account to your Upromise credit card you get a 15% cash back bonus that they deposit back into your college savings account, helping you save even more.
Along with the roundups and cash back bonuses, Upromise members also qualify for savings and discounts at stores and restaurants. Routine expenses become college saving boosters.
With the cost of college rising faster than wages, it’s important that families start saving early. Depending on your income, you may not have the ability to save for your child’s entire college costs, but every little bit counts.
If you start early and use time and compound interest to help, you can contribute to college credits, the costs of books, or room and board. Then, encourage your child to apply for scholarships to help pay for the rest.
One large caveat is if you do not have money set aside for retirement, you have to save for yourself first.
Remember, your child can always get a loan to pay for school (even though it may not be ideal), but no one will give you a loan to pay for your retirement.
Acquania Escarne is the creator of The Purpose of Money, a community of women building generational wealth for their families one dollar at a time. As an entrepreneur, real estate investor, and licensed insurance agent, Acquania has always been passionate about financial literacy. On her website, Acquania blogs about ways to help you improve your money habits, create wealth, and invest in real estate. Follow Acquania on social media for daily tips.