The Basics of Saving for College
With a dependable savings plan in place, prospective students and their families don't need to drown in debt as they work for a college degree.
It's become common knowledge that any child growing up today should have their sights set on college in the near future. But for all the benefits that a college degree brings, millions of Americans are all too familiar with the financial hardship involved as well. According to The Wall Street Journal, using statistics from education finance experts, the average amount owed on student debt continues to climb dramatically with each graduating class. For the class of 2016, the average degree-holder inherited more than $37,000 in debt upon crossing the stage this spring.
"With proper planning, saving for college remains a good investment."
This is far from a modest sum for most young Americans, but fortunately, there's plenty of good news for grads as well. The Journal article also cited a bevy of statistics from the federal government and other researchers which indicated that recent graduates, and even incoming students, face great prospects for paying off those debts. National unemployment for college graduates sits at the low rate of 4.6 percent, and those who received a bachelor's degree in 2015 had an average salary of more than $50,000 within a year.
Clearly, college is still a good investment. With a dependable savings plan in place, prospective students and their families don't need to drown in debt as they work for a college degree.
Savings rules still apply
With the prospect of a big debt payment on the horizon, many may not know where to start when it comes to saving up for school. But as with any other major savings goal, it comes down to starting early and keeping goals in check. In speaking with financial advisors and experts, NPR reported that every foolproof college savings plan involves taking advantage of things like retirement benefits. Parents should always contribute to a matching 401(k) plan if their workplace offers it, as this will provide the first buffer of funds for future education expenses. Even though this money is intended for long-term costs unrelated to a child's education, parents can't neglect their own financial needs.
Know your plan
Smart budgeting and careful spending are hallmarks of any basic savings plan. But when it comes to something like college, it behooves you to look into every available option. One of the most well-known savings vehicles for college savers is the 529 plan, sometimes called a Qualified Tuition Program. A 529 plan serves as an attractive destination for saved-up college funds for many reasons, according to the Securities and Exchange Commission:
- Contribution principal grows without incurring tax
- Funds often are exempt from state income tax
- The account holder controls all funds
- Contributions can be made through automatic payroll deductions
Parents often open a 529 account when their child is young and continue adding to it until they are ready for college. At that point, the funds can be withdrawn to be used for any education-related expense, including tuition, textbooks and housing. Savers can use a 529 plan in conjunction with a Roth IRA to get the most tax deferment available on their college savings and expenses.
Nailing the details
With spending reduced and savings plans in place, all families need for financial success once college begins is some perseverance. But as The Simple Dollar noted, there are still some important details to keep in mind that might not be obvious. For one, parents should keep big savings accounts in their name, rather than a child's, since this could count against them when schools award financial aid money. Families should also look into specific programs offered by their state. Some states offer prepaid college tuition plans that can prove enormously valuable, in addition to more conventional 529 or IRA accounts.
Finally, when it comes down to it, kids need to ensure they are prioritizing their education. Parents should help and encourage their children to get good grades throughout school, as this may help them receive further aid in the form of scholarships. And if big loans are needed to finance a stint in college, always make sure the focus is on learning first. There are many programs available specifically to help with student debt, but earning that degree should always be the priority.
Vectra Bank can help you manage your college savings plan.