Saving for College Today Can Make for a Brighter Tomorrow
The cost of college tuition is on the rise. Personal finance and business forecasters at Kiplinger note the average cost for a year of tuition for in-state students of public universities to be approximately $15,000 in 2009. Private colleges can be more than double that amount. As costs climb, prospective students (or even parents of prospective students) can put themselves at an advantage by saving for college early.
While other resources exist for students who need help paying for tuition, saving money personally is a great way to offset future expenses while also learning healthy budgeting techniques. Combining a savings plan with safe investment strategies can have a powerful long-term impact. Just saving $100 a month at a modest annual growth rate of 6% can yield almost $40,000 after 18 years — and that will go a long way toward the total cost of school.
So What Can I Do to Save?
Luckily, you have several options for saving money. Each strategy has its advantages; so if you're considering a savings plan, make sure you know all of the details before investing.
529 Savings Plans
529 savings plans, also known as "Qualified Tuition Plans," are investment plans designed specifically for educational savings. Investors seeking to sock away educational savings for long periods of time may want to consider investing in a 529 plan. This investment option has higher contribution limits than educational savings accounts (ESAs), and assuming that account holders follow the withdrawal guidelines, money taken out of the account may be tax-free. On the other hand, if money is withdrawn outside of those guidelines, the account holder could experience substantial financial penalties.
529 savings plans are state-specific, meaning that each state has different rules to govern the use of these plans. However, investors are not limited to their home state when opening a plan. Also, the plan does not depend on the location of the chosen school. For example, an investor in Louisiana could choose a 529 plan from Massachusetts to save for a school in South Carolina. With 529 plans, investors have that freedom of choice.
If you're considering an investment strategy that involves a 529 savings plan, pay attention to each state's investment criteria. Look for any specific fees or regulations that that state may enforce. Know what makes each plan different so that you can choose the right one for you.
Other Ways to Save
There are a variety of other saving options available for prospective students. Feel free to read about the additional strategies available to make your college dreams a reality.
