February 24, 2024
8 Ways Parents Can Plan for Their Children's College SmartAsset

The average cost of tuition and fees for the 2023–2024 school year for in-state residents was $10,662 at public colleges and $42,162 at private colleges. Still, by taking a few important steps, you will find many practical ways to prepare financially for your children’s college education. These strategies may include budgeting, looking for scholarship opportunities, saving early, and understanding costs. A financial advisor can also help you create a financial plan to manage all of your college savings options.

1. Open a Tax-Advantaged 529 Plan

Engaging in a 529 plan, a tax-advantaged savings plan intended to encourage saving for future education costs, can be an integral part of your overall financial plan. Financial advisers can provide expert advice about whether this is the right savings plan for your circumstances. Named after Section 529 of the Internal Revenue Code (IRC), this plan is sponsored by states, state agencies, or educational institutions and offers a systematic approach to saving for college over time. Plus, you can now transfer any unused funds to a Roth IRA account after you pay for your child’s college.

2. Create a college budget

To gain control over your finances and make informed decisions about saving and spending, it is important to create a budget. This could be the difference between having enough money for all four years and running out of money after just one year. Here are five general things you need to keep in mind:

  • Estimate education costs, including tuition, books, and housing.
  • Identify your income sources and keep track of your monthly expenses.
  • Evaluate your child’s potential spending habits to identify where you can save more.
  • Identify how much of the cost of living your child can offset by working a part-time job while in school.
  • Take into account inflation and possible changes in the cost of college over time.

Remember, it is beneficial to save where possible, but one should avoid assuming that every dollar saved today is equivalent to one less dollar to borrow tomorrow.

3. Invest in Potential Scholarship Opportunities

Scholarships can significantly reduce the financial burden of college expenses, making it essential to explore these opportunities. The main thing is to start your search early, apply for multiple scholarships, and comply with the specific requirements of each scholarship. Additionally, as your child develops skill in a sport, musical instrument or other endeavors, consider developing that talent so they can get more scholarship opportunities.

4. Save money every month since birth

A mother hugs her child after he graduates from college.

Saving early can add significantly to the final amount due to the power of compound interest. For example, saving $200 per month from birth at a 6% interest rate could give you a total of $78,058 by the child’s 18th birthday. But remember, this is just a mathematical probability. Actual results may vary depending on many factors, including market variability. The important factor is that you are saving and investing for your child’s future as quickly as you can within your budget.

5. Understand the future costs of college

Online calculators that take into account current costs, the child’s age, and the expected rate of inflation can provide an estimate of future college costs. College tuition and other costs have increased over the past 20 years, so it’s likely that they could continue to increase over the next 20 years. This is something that many parents do not take into account, which can result in the cost of valuable time and money. , and put them at risk of being left behind.

6. Know Financial Aid Guidelines and Possibilities

Understanding financial aid guidelines and possibilities can help determine whether you qualify for aid. If that structure makes sense to them, your child may be able to get grant money or even borrow the amount needed to offset what you can save. Some guidelines will limit their ability to receive money based on your income and financial situation as a parent. These guidelines may change over time so it’s important to know what your child may be eligible for, and what the requirements are for you and them.

7. Involve your child in saving

Your children should be involved in saving for their college once they reach the age where it makes sense. Involving them in financial planning is beneficial because it can potentially instill saving habits and develop financial prudence that can help them in the future. One way to do this is to get your children involved by saving part of the allowance, or helping them budget when they are old enough to get a job.

8. Check your annual college savings

Reviewing your college savings annually will help you ensure you’re staying in line with your goals. Understanding where your savings account currently stands and comparing it with what you will potentially need in the future will help you make wise decisions to adjust your investments and save more as needed.

ground level

A mother and daughter review their college savings plan.

Planning for your children’s college expenses can seem daunting. However, proper planning and discipline along with expert advice from a financial advisor can make it manageable. Still, remember that your success in reaching your college education goal will depend on your specific finances. So make sure you plan accordingly.

Saving Tips for College

  • A financial advisor can help you estimate how much you need to save for your child’s college and then create the right financial plan to help you get there. Finding a financial advisor doesn’t have to be difficult. SmartAsset’s free tool matches you with three verified financial advisors serving your area, and you can have a free introductory call with one of their advisors to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you’re curious about opening a 529 plan for your child, consider checking out a managed plan in your state, or shop around for the plan that’s right for you.

Photo Credits: ©iStock.com/monkeybusinessimages, ©iStock.com/SDI Productions, ©iStock.com/andresr


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