Simplifying Saving for College

Apr 3, 2013 | Personal

Whether you’re returning to college or saving for a child’s education, know that embarking on a savings planright now is a cost-effective way to pay for college.
By investing, it’s estimated you’ll pay less than half what your counterparts relying on loans will pay for the same education.
That’s big savings. Consider this: U.S. Department of Education reported the cost of tuition, room and board across college type (4-year, 2-year, private, public) for the 2010-2011 school year was $18,497.
The good news? Many vehicles, including the five listed below, exist to make the road to saving for college a little less bumpy and daunting.

  1. Get a feel for how much education may cost by the time you, your child or grandchild enrolls. A nice tool is the College Savings Plan Network’s calculator. Enter the current age of the student, college type (i.e. in-state, private), the national average tuition inflation rate, and the anticipated number of years required to finish the degree. The calculator provides an estimated target amount to guide your plan.
  2. Seize the power of compounding interest. It’s never too early to start, and the amount socked away is never too small. This phenomenon is often called the “Latte Factor,” because this expensive daily purchase/habit is often used as a tangible example of how forgoing the small stuff adds up to big dollars. Say you spend $5 a day on your java. Plug in that monthly savings of $140 — allowed to grow for 30 years at a rate of 8 percent — and this nifty tool shows in an animated way how that paltry five bucks results in more than $323,000 in savings.
  3. Select a savings vehicle to drive your plan. 529 plans (or Qualified Tuition Programs) differ from state to state, but you can compare the four plans available in Nebraska here. Most don’t require a minimum amount and boast a maximum total contribution of $360,000. Investment managers, investment options, fees and availability of rewards programs differ by type. Additionally, if your income qualifies, you may use the Coverdell Education Savings Account to invest up to $2,000 annually for college and for schooling to ready your child for higher education — including grade school and high school fees. Uniformly, you can see your investment grow and, when it’s time to withdraw from the account, you won’t be taxed.
  4. Leverage tax benefits. Take advantage of credits to help offset college costs, such as (in recent years) the American Opportunity Credit and Lifetime Learning Credit, whereby $2,500 and $2,000 respectively may be claimed per year for tuition and fees, books, supplies and associated expenses.
  5. Maximize your savings with programs like Ugift or Upromise. With the former, your family members and friends can “gift” contributions to your eligible 529 plan, in lieu of (on in conjunction with) other holidays or milestone events. This gifting can be facilitated entirely online, and you can manage the gifting/see who has donated by accessing your account via a secure login.

Start now. Save often. After all, in the words of Benjamin Franklin, “An investment in knowledge pays the best interest.”