College certainly is a big investment and deciding how you are going to pay for it is definitely a challenge. Some parents pay for all of their child’s education. Others want their child to share the responsibility, or simply can’t afford to pay the entire expense. So how do you decide what needs to be done to pay, arguably, the biggest investment of you and your child’s life? And how do you do it in a way that won’t break the bank?
A savings plan!
If you want to be able to afford retirement and not have your child paying off student loans for the majority of their working life, a savings plan is necessary…and it’s easier than you think!
An article on fastweb.com discusses different savings plans and how they work.
The first plan discussed divided saving into three different parts.
Part One: A Savings Account
The first part of this saving plan relies on “past income,” or your savings. Preferably you should start a college savings account when your child is born, and put a little bit of money in it each month. According to the article, if your child is born in 2009, about $220 a month should be going into that savings account (and almost double that, $417, if a private college is in your child’s future).
Part Two: Current Financial Income
The second component of this plan would be using revenue that would be coming in at the time your child would be entering college. A portion of your income, along with your student’s financial aid, would go towards their tuition, room and board, and other costs.
Part Three: Loans
If the two previous parts of the savings plan have, ideally, been kept up monthly, then the need to take out loans shouldn’t be too great. In addition, there are more options for students, such as lower interest rates and low loan amounts as to avoid taking out too much money unnecessarily.
The other savings plan option involves your child to take on more financial responsibility.
Laura Kuntz, a mom and financial advisor, quoted in the article gave her daughter a specific dollar amount of help she would provide.
In reference to her policy, Kuntz stated, “The reason that’s important to me is when it’s 8 a.m. and she doesn’t want to get up and go to class, I want some of that to be on her dime.”
In conclusion, the type of savings plan that you set up for your child isn’t as important as just having a savings plan in general. Also, no matter the amount of financial responsibility your child will be required to take on, it is vital that they are aware about finances and how to save for the expenses that will come up in their lives.