While your soon-to-be college student is busy sending out college applications, you’re probably thinking about tuition, books, and other educational expenses. When it comes to preparing for college, it’s best to start as soon as possible. After all, once your child enters high school, the clock starts counting down.Though it doesn’t always make the headlines, student debt is quickly becoming a national crisis. As of January 2020, student debt among 45 million US borrowers has nearly reached $1.6 trillion. Between skyrocketing tuition and an ever-increasing number of mandatory fees, it’s no wonder that so many young people are throwing in the towel altogether and going straight from high school into the workforce.
That said, there’s no need to panic. With the right financial plan, you can ensure that your child gets a solid college education without accruing massive debt. So, what can you do? When should you start saving for college? More importantly, what financial habits can you implement to ensure that your kids have the funds that they need?
5 Tips to Financially Prepare for College
Figuring out how to pay for college is no easy task. Costs vary between states, schools, and individual students. Nonetheless, there are a few ways that you can save enough while also cutting down on college-related expenses. So, let’s look at 5 tips to financially prepare for college while your child is still in high school:
Estimate Your Highest Potential Costs
It’s difficult to set financial goals if you don’t know where you’re going. Keeping an open line of communication with your child is key. What are their interests? Would they prefer to go to college in-state or out-of-state? Do they have a particular college in mind?
Since you’re likely footing the bill, you will also have a say in where your child gets their education. Nonetheless, learning what your child wants to get out of college will help you come to an agreement as a family.
This, in turn, will help you come up with a few possible scenarios for the future.
For example, let’s say that your child is interested in a few different schools. In order to plan accordingly for all possible scenarios, you will need to do your research on the following costs:
Room and board
Some of these costs will stay the same (more or less) with any school. However, some of the biggest expenses (like tuition and room and board) will vary. Once you’ve calculated the approximate costs, you can save towards a target rather than setting savings strategies blindly.
Set a realistic savings timeline
Now that you have a number in mind, it’s time to develop a college preparation timeline. Like any savings plan, you should leave room for occasional hurdles or financial setbacks. This way, you will be prepared for the worst-case scenario.
First and foremost, you need to figure out the source of your savings. Where will the money come from? Can you put part of your monthly income into a high-yield savings account? Or perhaps you wish to set aside part of your investment dividends? In any case, you need to determine exactly where your savings will originate.
Once you have one or more sources established, you simply need to set a realistic savings timeline. Again, it is important to plan for the worst-case scenario whenever possible. Don’t assume that your investments will all grow ten-fold between now and your child’s freshman year. Instead, set aside slightly more than you need to (whenever possible) to prepare for financial obstacles or economic downturns.
Focus on the value of higher education
Once you start seeing the high costs of college, you may get discouraged about your savings plan. After all, it’s pretty easy to set a plan, but it’s not always so easy to stick to it. You may think that the money would be better spent on something else for your child or your entire family.
This is why it is important to remind yourself of why you wanted to save for your child’s education in the first place. Like any parent, you want what’s best for your child. You want them to have all the opportunities that you had (and more). So, thinking about your child’s future and the value of a good education will help you stay true to your savings plan.
Get your child involved
Even if you don’t want your child to contribute any money toward their college fund, it is important to keep them involved in financial conversations. When kids know the real costs of college, they are more inclined to find ways to help out. Additionally, children (especially teenagers) appreciate when adults involve them in important conversations.
There are numerous ways that your child can help you with your savings plan. For example, they might research some merit-based scholarships to help lower their tuition. They could also get a part-time job after school or help the family stick to a budget. In any case, involving your child in the conversation will keep the entire family on the same page as you develop your college savings plan.
Consult a financial advisor with a college funding specialization
While you may prefer to do things your own way, getting a second opinion can be a huge help when you’re trying to save for college. Sometimes, you get so wrapped up in the details that you lose sight of the bigger picture. A financial advisor can provide an objective view of your financial plan and help guide you in the right direction. Unfortunately, a lot of advisors are well trained in the process of saving FOR college, but not very many have a specialization in saving ON the cost of college. Savings strategies should be aimed at lowering EFC to maximize financial aid, taking advantage of tax incentives, and building a full 4 year plan to pay for college down to the penny.
Ultimately, this is why people come to financial advisors. Maybe you’re not tapping all your potential sources of income or maybe you need to rethink your investment portfolio to maximize your savings. In any case, a financial advisor can help you create an effective college savings plan and stick to it.
At Afton Advisors, we understand that financial planning for college can be stressful. If you’re in need of financial guidance, feel free to contact us so that we can help you develop a comprehensive strategy to fund your child’s college experience!