Sense & Centsibility Blog
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How to get a head start on saving for college

By Madeline Daniels, America Saves

The average amount families paid for college in 2017 was $23,757, according to Sallie Mae’s How America Pays for College report.

Their research shows that students and parents share nearly equal responsibility for covering college costs. While the good news is that scholarships and grants are covering the largest share of these costs in a decade (35 percent), 23 percent is covered by parents’ income or savings, 19 percent is covered by student loan borrowing, and just 11 percent is covered by the students’ income and savings. It’s no secret that the trick to borrowing less is saving more.

But college savings can actually help future college students do more than take on less debt. Children with college savings are actually four times more likely to attend. Need help getting your family started? Here are three things you need to know to get you on the path toward college savings success.

1. Make a college savings plan

Most families expect their child to go to college, but only two out of five families have a plan for how to afford it.

Notably, families with a plan contribute three times more from parent income and savings than families without a plan, according to Sallie Mae. That’s consistent with the America Saves 2017 household savings survey, which shows that savers with a plan are over twice as likely to be making good or excellent progress meeting their savings needs.

This is where the America Saves Pledge comes in. When you take the pledge, you create a simple savings plan and set an education savings goal. Then the non-profit campaign keeps you motivated with relevant advice, tips, and reminders to help you reach your goal. Think of it as your own personal support system.

2. Start saving at the baby shower

We like to say it’s never too early to start saving for college. Instead of more toys and clothes, ask for contributions to your child’s college fund at the baby shower.

A 529 plan can be opened as early as birth. It’s a tax-advantaged savings plan designed to encourage saving for future college costs that is sponsored by a state, state agency, or educational institution. That means that interest earnings are free from federal and state income-taxes. Thanks to compound interest by the time you’re carrying the extra-long twin sheets into the freshman dorms, that money could be worth up to three times more than money invested in high school.

While every state and the District of Columbia offers some kind of college savings plan, the benefits can vary. Just keep in mind that not all 529 plans are created equal, so do your research and comparison shop. Traditional savings or investment accounts, Coverdell Education Savings Accounts, savings bonds, and child savings accounts are also commonly used.

But while it’s never too early to start saving for college, it’s also never too late. Even a small amount of savings (under $500) can make a student four times more likely to graduate.

3. Budget realistically

With college costs continually on the rise, it’s difficult to estimate what the price of college attendance will look like many years from now. But there are many factors you can plan for.

The first is graduation time. The idea that a bachelor’s degree takes four years to complete is more myth than reality, with the average completion time being six years. That’s two additional years of tuition, fees, food, housing, school supplies, and expenses you should be budgeting for.

Another factor is understanding the differences between sticker price and the actual cost of attendance. Because of financial aid packages, including government loans and grants, few students actually pay the published price. You can get a better picture of what most actually pay by using the U.S. Department of Education’s College Scorecard to compare the average net prices and things like average debt students leave a school with, graduation rates, and earnings after graduation.

To learn about the expenses you can plan for in advance, check out Better Money Habit’s video on how to estimate your child’s cost of attendance.