College is expensive, and it isn’t getting any cheaper. No matter your child’s age, anything you can do to help them save money for college will be beneficial.
At public institutions, the average cost of tuition and fees in the 2022-23 school year was $9,800, according to the National Center for Education Statistics. That’s more than four times the average cost of tuition at private nonprofit institutions was $40,700 per year.
Given these numbers, it’s not surprising that 30% of all adults took out student loans for their education, according to the Federal Reserve. As of 2022, the median amount of education debt among borrowers with an outstanding student loan balance was between $20,000-$24,999.
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Carrying this much student debt can be daunting, especially for someone fresh out of college. As of 2023, the average starting salary for recent graduates is $55,911 per year, according to a survey conducted by Real Estate Witch, a division of real estate site Clover.
Now that you’ve seen the numbers, it’s time to get to work.
Here’s some advice to help you figure out how much to save for your child’s education and how to work these savings into your budget:
Lay the Foundation
“First, let’s look at saving for college as if it is any other goal, before I encourage anyone to save for goals it is important to have the foundation down first,” said David Daley, founder of Daley Financial Planning. “Part of that foundation is being out of high-interest debt, having an emergency fund and saving for retirement.”
He said this is important because there are no loans, grants or scholarships for retirement.
“This is a bit of a ‘put your oxygen mask on first’ analogy,” he said. “With that out of the way, we can take a deeper look at saving for higher education.”
Understand Inflation
When saving for college, inflation needs to be considered.
“Although the United States target for long-term inflation is 2%, historically higher education has had an inflation rate closer to 5%,” Daley said. “This will affect how much we want to save if we are trying to pay 100% of the cost.”
Yes, tuition is already expensive. However, no matter how old your child is, it will inevitably be even more expensive by the time they go to college.
Choose Schools Strategically
As noted above, the cost of college tuition varies greatly by school. Therefore, Daley suggested creating a plan for your child to complete college that works for your family.
“It might make sense to start at a community college and take care of many of the core credits at a fraction of the cost of most four-year universities,” Daley said. “Many students now have access to pathways to obtain college credits even before getting out of high school.”
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Seek Out Grants and Scholarships
College isn’t cheap, but grants and scholarships can help. Daley said your child should also be invested in uncovering these resources.
“I see finding grants and scholarships as — usually — the first job out of high school,” he said. “It can greatly impact the overall cost of education.”
He recommended visiting sites like Scholarship.com, Collegeboard.org and CareOneStop.org as good places to start searching for grants and scholarships.
Choose the Right Savings Vehicles
The type of account you use to hold your child’s college savings matters. Daley said a 529 account is one of the most popular savings vehicles for higher education.
“Money invested in a 529 has less impact on the FAFSA, grows tax-deferred and is tax and penalty-free when used for education,” he said. “Many states offer in-state tax deductions for contributions, you can change the beneficiary to whoever you want and up to $35,000 can later be transferred to the beneficiaries’ Roth IRA.”
Ultimately, the amount of money needed for college is different for everyone. Additionally, the amount families can save varies greatly — and that’s okay.
“Even if you can’t fully pay off your student’s higher education, remember that every bit helps,” he said. “I hope you are encouraged to build your foundation as you work towards setting up your student for success.”
Be proud of yourself, because the sacrifices you’re making today will help your child have a brighter tomorrow. Taking a proactive approach to their education could mean they’ll be able to afford their dream school — when they otherwise would not — or allow them to enter adulthood with a degree, minus the weight of — as much — student loan debt.
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This article originally appeared on GOBankingRates.com: How Much Should You Save To Pay Your Child’s Student Loans?
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