If you’re thinking about your responsibilities as a parent to your children, giving them the ability to pay for a college education might be top of mind.
You’re right to be thinking about college savings now. Today’s college graduates are leaving school with an average of $37,172 in student loans — and those degrees don’t automatically equal bigger paychecks when you get into the workforce.
But if you’re proactive about chasing down college savings hacks and finding ways to reduce college costs, the task of saving for college for your kids doesn’t have to be so daunting. Try one of these 5 savings strategies to help your child head to college (without landing yourself with a massive bill for the cost of that education).
1. Set Up a 529 College Savings Plan
Yes, you need to save now for your kid’s college, even if it’s still 10 years or more down the road. But don’t just sock the money away into a savings account.
Instead, consider using a 529 plan and let those savings work for you between now and when your child plans to go to school.
The money you invest in a 529 College Savings Plan grows tax-free as long as you use the funds for education-related expenses. Some states even have extra tax benefits as an incentive to contribute to one.
For example, Utah offers its residents a 5 percent tax credit on contributions up to certain limits, depending on your tax filing status.
Because the money in 529 plans can be invested, this is a good option if you know a college experience is at least 5 years away for your family. With a shorter time horizon, you may not want to expose your savings to market volatility by investing them.
2. Take Advantage of Tax Benefits
The Lifetime Learning Credit is a tax credit that allows you to get up to $2,000 of education expenses back. The caveat is that the credit isn’t refundable, so it will only go toward paying taxes that you owe.
If your family qualifies for the credit, you’ll get 20 percent of the first $10,000 you spend every year. So, if you only spend $5,000, you’ll qualify for a $1,000 credit.
There’s no limit to how many years you can earn this credit, but there are income limits. Check the IRS website for the current year’s limits.
3. Empower Your Kids to Work and Save Some of Their Own College Money
This may not be an option now, or even for every family. But if your child is interested in taking a gap year or can work part- or full-time while in school, consider it as an option for helping to pay some of the cost of college.
You can encourage and help your teenager or 20-something to look for positions that would specifically help pay for higher education costs. They can consider, for example, working for the school they want to attend.
Many colleges offer to cover a portion, if not all, of their employees’ tuition expenses. There may be some restrictions, though. Employees may have to work for the university for a certain amount of time before qualifing for the benefit. Or they may have to be a full-time employee.
To find out whether this is an option, reach out to the school to see what their policy is and whether there are any job openings that make sense for your student.
If working for the college directly isn’t an option, you can still explore earning more money to help pay for college costs in combination with taking steps to save what you can. Doing both will make it much easier to manage continuing education expenses.
And if your child works, remember that they can contribute to their own Roth IRA. If they’re in high school, this might be an option to help pay for college costs down the road (or to give them a good source of spending money that they have control over and must learn to manage).
4. Apply for Scholarships and Grants
Depending on where your child wants to go to school and what they want to study, they may qualify for scholarships and grants. And unlike student loans, you don’t have to repay these funding sources.
The trick to this tip is to do your research. It’s not likely that someone will go out of their way to offer this money to you — you need to find it.
Check with the university you plan to attend to see what types of financial aid they offer in the form of scholarships and grants. Also, look for other sources of scholarship and grant money using databases like CollegeScholarships.org.
Funds (that you don’t have to repay) for higher education are out there, but it takes a lot of legwork to uncover them. Brainstorm a list of organizations, foundations, or institutions that might provide grants or financial aid to students like yours.
If they’re involved in a specific extracurricular, part of a unique organization, or a member of a minority or special-interest group, make sure you think of businesses and companies that might support your community and check to see if they have scholarship programs.
5. Choose the Right School
One of the biggest ways to reduce the cost of college is to evaluate all the options and choose a school based on a number of factors — including price.
Well-known, famous, and “brand-name” schools may be at the top of your child’s list. But depending on what they actually want to attend a university for, it might not make sense to shell out a lot of money for those 4 years.
Consider what your child wants to do in college, and help them research universities with specific programs that align with your students’ desires, interests, and post-grad goals. Then compare the costs of those schools to help find the one that offers what your child wants and is reasonably priced.
Choosing a school this way rather than just going on name recognition alone can help your child have a better collegiate experience and be better prepared for life after school. In that context, it’s just a bonus that it could save you money, too.
Whatever You Choose, Start Now
There’s no one best way to reduce the cost of a college education, and not every option mentioned above is available for everyone.
It’s crucial that you start exploring your options now. Even if your plans aren’t solidified, having the financials figured out early can give you some peace of mind and help you determine what’s feasible for you and your family.