Balancing Financial Planning for College with Other Goals

Are you planning to help your children with getting a degree someday? Financial planning for college has become a big priority for many American households. However, with education expenses on the rise, the total price tag may be much larger than you think.

The average cost of attending a public college is $27,330 for in-state students, $44,150 for out-of-state students, and $55,800 for a private school per year.^[1] Add to that other major expenses like room and board. For students seeking to earn a bachelor’s degree, that means they could easily spend over six figures by the time they finish their fourth year!

Which brings us to the subject of saving for college.

It is an admirable goal to want for your children to enter adulthood free from college loans. However, parents shouldn’t sabotage their own finances in the process. There must be a balance among all financial goals, such as preparing for retirement, paying off debt, and building an emergency fund.

Fortunately, planning for the cost of college becomes more manageable the earlier you start the process. In this post, we’ll discuss strategies that parents can deploy without stressing the rest of their finances.

5 Ways to Plan and Save for College

Here are five of the most commonly used ways that parents prepare financially to pay for their children’s college.

1. 529 Plans

529 plans are special state-sponsored investment accounts designed to help parents save for higher education expenses. You could think of them as a special-purpose IRA. Instead of using the money to cover your living expenses during retirement, you’ll use it to pay for college.

The way a 529 plan works is simple. Your contributions are pooled into an investment plan. That investment plan is managed by the state and invested in a variety of securities. Contributions may be tax-deductible at the state level. Some states offer more incentives than others, so it’s good to consult with a financial advisor who has done the research to understand your options.

The asset allocation of your 529 plan is often tilted toward a higher-return blend of investments when the kids are young — and will turn more conservative as your kids approach college age.

Once your children go off to school, you can use the funds to reimburse yourself for any qualified higher education expenses. There are many items that fall under this category, including tuition, room and board, fees, books, laptops, etc. Investment earnings are considered tax-free as long as they are used for qualified expenses.

Pro-tip: If one of your children decides to not go to college, there’s no reason to withdraw the money and pay a penalty. Parents are allowed to transfer the funds to another child, family member, or even wait until a grandchild is born. In fact, some savvy investors use 529 plans to create a financial legacy for multiple generations within their families. To find out more about doing this, check out our post here.

2. State-Sponsored Prepaid Plans

Another way that parents can plan ahead for college is to use prepaid plans. Prepaid plans allow the family to buy semesters of college in advance, at a predetermined price. Because the cost of college is on the rise, someone with children as young as toddlers may end up paying for these semesters at a sizable discount.

Prepaid plans are usually accepted at any public university within the state. However, they often cover tuition and certain fees only, and parents must be prepared to pay for any uncovered expenses out of pocket (such as room and board).

3. Early College Credits During High School

Does the high school your child plans on attending offer an early college program? If so, it could offer an opportunity for major savings.

Many states have created joint programs between local high schools and community colleges where students can take college-level classes during their junior and senior years. By doing this, students could rack up enough credits to skip their freshman year before they’ve even graduated high school.

And the best part is that the high school pays for these college classes. There’s no cost to the parents. Some early college programs even take this a step further by continuing to sponsor the child for one year after they graduate high school. Those who are homeschooling or participating in a charter program often have a similar option available; start with your coordinator or the local community college to get the details.

4. Personal Investments

Parents who are harnessing the compounding power of investing in their retirement savings accounts can use it to save for their kids’ college, too. However, remember that there may be some nuance involved: saving for college is not exactly like saving for retirement. Since the time horizon for college will be shorter than retirement, the asset allocation will most likely need to be different. It is best to do this under the guidance of a trusted financial planner.

5. Get Your Children Invested

There’s more satisfaction in achieving a goal when you play a part in accomplishing it. This is especially true for children — and a big reason to make them a part of the savings process. Encourage them to get a part-time job and start stashing away a portion of every paycheck toward school. You could even motivate them further by offering to match their contributions (just like how an employer does with a 401(k) plan).

Another big help is scholarships. Every scholarship they earn means less money you’ll both have to pay out of pocket. Point them in the right direction by looking for websites or high-school resources that post curated lists of eligible scholarships. Remind them that every year, tens of thousands of dollars in scholarship money goes unclaimed because nobody bothered to apply. Big scholarships and grants may look like the ultimate golden ticket, but small scholarships can and will add up, too.

Balancing Financial Planning for College with Other Goals

There’s a lot that can go into planning for the cost of college. The best course of action is not to delay and start the process as early as possible. No matter which one of these strategies you decide to use, be sure it fits into your overall financial plan and doesn’t sabotage your goals.

Also, remember that you don’t have to navigate paying for college alone. Let the professionals at SYM Financial help you determine the best path forward. To find out more about how SYM Financial can help your family save for college, reach out to a member of our team today.

^[1] Undergraduate Institutional Data – Petersons Data