One of the most important investments you can make is in your child’s education. This is an investment with very limited risk but huge rewards.
However, a college education is also one of the most expensive things you will ever have to pay for. Tuition fees vary a lot but if your child is lucky enough to get accepted into an Ivy League college your bill for tuition fees alone could run to tens of thousands of dollars each year.
Help is at hand. There are many ways which you can prepare and ensure that you have the financial resources to support your child through college.
This short guide below will give you the tools to make sure you can support your child and make this life changing investment.
Beginning the journey
- Start Early
As with most investment plans the earlier you start the better. You have about 18 years to prepare to make this investment, but it is still important to start early.
At the beginning, save what you can. Try to work out how much you think a college education might cost. It’s important to aim high. You never know how academically successful your child may be. Once you know you have a savings target.
When you have a savings target ask yourself, will what I am saving now be enough.
Don’t worry!
In most cases it will not be enough but at least you will know how much you need to increase your savings by each year and how much more you need to earn. How you save is also important.
If you save each month in cash the amount you save will grow very slowly. There are a variety of stock market linked products out there with the potential to grow much more quickly. Many of these plans in a number of countries come with tax benefits too!
Once you have decided to save, invest in a little professional advice at the beginning of this journey to make sure that the good work you’re doing in starting early is maximized with the right investment choices.
2. Invest at the most important stage
You may be thinking that you will have tuition fee expenses way before college. Stop! You really need to ask yourself at this point can you afford a private Elementary School and High School education as well as College.
It is important to invest at the most important stage in your child’s education. You know that a College education is really important. It is probably your priority. If you have excellent public schools in your neighbourhood do you really need to pay for a service that you can get for free?
Check out your local public schools; maybe meet with the School Principal. Talk to local parents and try to figure out if the local schools have a good reputation.
If you are not saving enough now for college you probably cant afford it so you definitely cannot afford a private Elementary or High School education.
Hold back, save your money and invest at the most important and expensive stage in their education.
But wait, there’s more
3. You can still invest some money now
You don’t have to hold everything back to save for college tuition. A little money invested elsewhere now can also make a big difference in the future whether or not you choose public over private education at the beginning.
During your child’s early and Middle School education they may find some subjects hard. You can invest some money now in additional out of school tuition to improve their grades with the potential for a bigger return on your investment in the future.
Strong grades mean that they may find it easier to qualify for a scholarship. These can cover some or all of the cost of your child’s education. A small investment now could generate a big return.
It is not only grades that matter, investing in extracurricular activities can make it easier for them to get into certain colleges. In addition if they become really good at a sport or other activity they might be able to get a scholarship in that area too.
This is a really important step. Imagine how much more affordable a college education would be if you could reduce the tuition fee bill by 50% or even reduce it to 0!
The better grades your child has, the better College they will get accepted into and the more they will earn over their lifetime. This step really is a no-lose situation.
You are not doing this alone
- When can they contribute?
It is important that your child makes some contribution to their education. It will ensure that they appreciate it more and will lighten the burden on you.
As soon as your child takes there first part time job you should make sure that they contribute to the savings fund for their college education. This has huge benefits.
It makes College real for them meaning they may work harder at school but also really can make a big difference in you hitting your college savings goal. You don’t have to insist that they contribute all or huge amounts of their earnings but a little can go a long way.
It also helps in other ways. If they do get a job then they will most likely build up some savings. This again reduces the burden on you as they will be able to assist and pay for any unexpected educational expenses that may arise.
Never mind the above though; it is also just fair that they make some contribution to something that they will enjoy such huge benefits from!
- Help is available
However hard you may try to prepare in the end it may not be enough. Things can happen which can be totally unexpected. Luckily there is always the option to bridge any funding gap with student loans.
In most places the main benefit of these loans is that you or your child does not have to pay them until they graduate. This means that they will be beginning to feel the benefits of the investment when the payment plans begin.
But wait!
There is a downside to this approach. At the beginning of their career your child’s earnings will be low. On top of rent and bills student loan repayments will leave them with very little left over. Student debt can run to tens of thousands of dollars and can take many years to pay back.
Like any other situation, taking on debt, especially debts which can be as high as student loan debt must be carefully considered. If possible it’s better to avoid it but it is a way to bridge that gap if your savings wont quite be enough to pay college tuition.
- Can family help
Over the course of your child’s life they will probably receive many gifts from members of your family. Sometimes these may be cash gifts. These gifts can be saved, especially in your child’s early years and can be used to top up their college education fund.
In addition, the child’s grandparents may wish to help right from day 1.
If this is the case, they could set up a regular monthly savings plan which could also be used to help to meet the cost of college education. Over 18 years any amount saved would amount to a tidy sum.
All those Christmas and birthday presents they will get that they will never use, why not suggest a cash gift instead and use this to top up the college savings fund.
As noted before there are a variety of saving plans available, the only down side is that there may be tax implications of this gift. It is important to get professional advice when taking this step.
Of course, not every family can help out but there may be other non-financial ways in which help can be given. You don’t need to pay for extra tuition if a family member can help, this reduces your expenses and can help with better grades and maybe even a scholarship!
- Review your plan regularly
At this point it is great that you have a plan in place but as you know your circumstances will change over time. It is important to constantly review your college savings plan.
If your off track you have to consider how you may get back on track. Can you cut expenditure elsewhere to get the plan back on track? Is there any way to increase your income?
The college savings plan should be a key part of your existing household budget. Make sure that the savings payment is deducted regularly and automatically from your monthly income.
This way the process becomes automatic and you don’t have to think about it. Its important that you have a written monthly budget and that you monitor your progress against it.
There are a whole host of free apps out there that can help you track your spending and make sure that you achieve your savings goals. A simple budget management tool like this one here can help also.
There may be alternatives
- Can you use your biggest asset
There are also alternative ways to help finance a college education. One of them is of course to refinance your home.
This is a very big step. By the time you child has reached college age you may have built up significant equity in your home. Finance raised on your home is generally a lot cheaper than other forms of debt and it also frees your child from very high student loan levels in the early years of their career.
However, you have to remember that if you do not continue to make the repayments your home can be at risk. You also may find it tough to generate more mortgage debt when you are so close to making that final payment.
But this is an alternative option to raise a substantial amount of money quickly. As with any form of financial arrangement like this it is important to seek financial advice.
There is the option though to have your child contribute to the mortgage repayments once they graduate but that’s up to you.
- Keeping them there
Once your child gets to college and that tuition bill is paid there are still more expenses to come. Whilst you may have guessed as to how much accommodation and other expenses would cost it may come in a lot higher when they get there.
In order to keep your child in college you need to be prepared to make big unexpected adjustments to your overall household budget once the college period begins. Try to keep the lines of communication open so you can plan as much as you can for big expenses coming down the tracks.
In some cases there may be the option to pay certain items over a longer period of time or even purchased used items such as textbooks. Investigate all options and keep ongoing expenses to a minimum.
A simple budget management tool like this one here can help.
- Graduate School
So you have budgeted for a 4 year degree and all of a sudden your child starts talking about grad school. This is now a very different situation.
Your child is now an adult and if going to grad school is likely to be someone who is targeting a job in a high paying sector.
At this point it is important to start to make sure that your child can stand on their own two feet. There are a variety of paid teaching posts available in most graduate schools and your child should take one to help pay their tuition.
In addition for many professional programs there are paid internships available in the months.
There is also a lot of different sources of research funding for those pursuing graduate studies. A whole host of foundations and research institutes are looking for talented projects to fund. Your child needs to investigate what’s available.
In addition the tuition fees for graduate school vary widely, it is important to assist your child in choosing a cost effective option.
Hopefully these tips will make the challenge of saving for a college education a little easier. It can be a wonderful period of their life and is a great opportunity.
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