Paying for Your Child’s Education: 3 Things You Need To Plan For
College! Such an exciting time for young adults. It's their time to learn, make new friends and discover their passions and prepare for their career.
Parents want their children to succeed. One way that can happen is if the children have a chance at higher education. With costs rising for both private and state universities the impact on your overall budget can be large.
Recent national studies say that between 22% and 35% of parents are prepared to pay at least a portion of the children’s college costs. Meanwhile, 41% of Impart Wealth Hive members with children anticipate paying their children’s full college costs. Another 33.8% expect their children to contribute some portion of the cost of their college educations. Only 5% expect their children to find a way to pay for their own college educations.
According to the College Board, the average one year cost of a four-year college is between $9,970 (public/in-state) and $35,260 (private). Without blowing your retirement on your children’s education, can you put into place a plan to make sure you’re covering at least some costs?
Three Steps to Saving for College Costs
Almost 70% of Hive members with children are already saving for their children’s education. They plan to have an average of $117K saved for each child's education when they are ready for college, in today's dollars. They’ve already have an average of $52K saved for each child.
Leverage a good 529 Plan
A 529 plan is a tax-advantaged savings plan that helps you pay for your child’s education. The 529 was originally designed to pay post-secondary education costs but was expanded to also cover K-12 education.
There are two major types of 529 Plans:
Prepaid tuition plans: Prepaid tuition plans allow you to pay in advance for your child’s tuition and fees at designated institutions.
Savings plans: Savings plans are tax-advantaged investments like IRAs.
There are hundreds of 529 Plans available including from 48 states and the District of Columbia. Review a chart of the state-based plans here: https://www.forbes.com/sites/baldwin/2016/03/03/guide-to-the-best-529-plans/#2b2f0b03323c
Use the 2K Rule
How do you determine how much you need to save? There’s a handy way to come up with a rough estimate called the 2K Rule.
With the 2K Rule you simply multiply your child’s current age by 2,000 to determine your “college number.”
For example, if you have a 5-year-old, you would need to have $10,000, or $2,000 times 5 years. Over the next 10 years, and with interest, you will reach close to the amount to fund all tuition costs at a private university.
Don’t go it alone.
A recent study by Fannie Mae and Ipso shows us that paying for college is a balancing act, with 43% of costs covered by family savings and income; 31% of costs covered by scholarships and grants; 24% of costs covered by borrowing; and 2% of costs were covered by friends and family.
Don’t be overwhelmed by college costs. Like a retirement plan, take one step at a time. Contribute to your plan consistently over time. And take advantage of all the opportunities available to you: 529 Plans, scholarships, In-state tuition, loans, your child’s income.