Saving to Put the Kids Through College
Most college students will not qualify for need-based college grants. Since college tuition is rising much faster than the inflation rate, planning is vital to be prepared to pay for college. That means saving for college is one of the most important thing parents can do for their children.
But how much should parents be saving for their children’s college education? Brett Wilder, Certified Financial Planner, and author of the book “The Quiet Millionaire: A Guide for Accumulating and Keeping Your Wealth” suggests the following advice:
1) Open a 529 College Savings Plan while the child is still very young. It is a savings account. Money put into the account can earn interest, dividends, and capital gains. If the money that is taken out is used to pay for college, the earnings are not taxed.
2) Look at what it will cost today to send your child to college. Then determine how many years it will be until the child enters college. Once you’ve done that, try to figure out how much college will cost be the time the child has grown up and enters college. Of course if you have more than one child, you’ll have to calculate for each child separately based on how much time is left before attending college.
3) The greatest amount of financial aid is going to come from the college itself. If the college wants the student and the college has money, then the college will use that money to attract the student. So make the colleges aware that the potential student is applying to other schools. It is good for the student to apply to several different schools. There is a chance that when the schools understand that the prospective student is considering several different colleges, the colleges may come up with financial incentives as a way of attracting that student (scholarships, lucrative financial aid packages, tuition discounts, etc).
Remember that college tuition rates are climbing faster than the rate of inflation. Many experts suggest that the rate is roughly double the average rate of inflation. Since the inflation rate is always in flux, it’s a good idea to check it once a year to perform a new estimation of how much money will be needed for your child’s college tuition and expenses. That way you can continue to keep on track. For 2012 the inflation rate is around three percent annually.