A college education is a valuable asset to everyone who has one. However, college costs have increased significantly since the 1990s. It is no longer possible for prospective students to work during the summer for minimum wage and use their earnings to completely pay tuition. Students are often faced with taking out loans to fund their education, only to be buried in student loan debt decades after graduating. Because of the increasing costs of a post-secondary education and the increasing amounts of student loan debt, investing and saving for college are the only methods available for average students who cannot receive much in merit scholarships or financial aid.
There are several different ways to start saving money for college. The simplest way is to start working at the minimum legal age in your state, open a savings account and put the money in there. By working after school, on the weekends and during the summer, you may be able to pay off some of your college costs. The rest of your costs could possibly be covered by merit scholarships or federal aid.
There are also other savings plans made specifically for parents with children. For example, parents can start a 529 plan. Although this plan is tax-deferred, the money will not be taxed if, when withdrawn, it is used to cover college expenses. The account is also set up so anyone can put money into it, so if grandparents or other relatives want to contribute, they only have to know the account number. This way, if the parents can no longer put money into the account because of financial constraints, other people can continue investing in a child’s college education.
Another type of savings and investment plan is a Coverdell Plan, or Education Savings Account. An ESA differs from a 529 in that the money put into the account can be used prior to college. For example, if parents want their children to attend a private school, money put into an ESA can go towards this, while a 529 is specifically for funding college. However, a Coverdell Plan has a limit as to how much money can be put into the account.
The third type of college savings account is a Uniform Gift to Minors Account. Although parents put money into this account, the account is actually in the child’s name. Once the child turns 21, the child is the only one who can access the funds in the account. One downside to having a UGMA is that it is taxable and the parents are responsible for paying taxes on this account.
Saving for college is important, especially in today’s economy. No one wants to be burdened by debt from student loans. There are many different ways to invest in a college education. It is important to carefully look into each option and evaluate the benefits and downsides of opening each type of account. Even if your child is not old enough to be thinking about college, begin putting money aside for him or her and teach him or her the importance of being financially responsible.