No matter how old your children or your grandchildren are, college is probably something you’ve thought about. Will they want to go to college? Will they attend your alma mater? Will they move far away or stay closer to home to continue their education? And how will you pay for college? After all, the cost of college continues to rise every year.
The good news is that you’re trying to find answers to these questions now, so your family will be prepared for the future. First, is a college degree really worth the cost?
People with a college education have a higher earning potential, more career opportunities, and better job security. Many employers require a college degree, even for entry-level positions. Other employers may be more lenient for low-level jobs but will overlook non-college grads when they’re considering who gets promoted or advances within the company.
In addition to higher earnings and job opportunities, there are also health benefits of a college degree. College grads are more likely to report being happy in their careers compared to people who have a high school diploma. There is also a sense of accomplishment linked to setting a goal, working hard, and receiving that college degree.
The earlier you create a plan to save for college, the better. Opening a college savings account while your child or grandchild is young will mean there’s more time for the money to grow. For example, consider that you open a college savings account when a child is born and save $100 a month until the child turns 18. If the account grows at a two percent interest rate, you will have saved more than $26,000 by the time the money is needed for college. That’s quite an education nest egg! Depending on your investment strategy and how much interest the money actually earns, that number could increase or decrease.
However, if you wait until a child turns 10 to start saving for college, you will need to save about $250 a month to save the same $26,000. The NC 529 Plan calculator can help you estimate how much money you will need to save to reach your savings goals.
How much you will need to save for college depends on what school your child or grandchild decides to attend. Every college has a different price tag, as well as varying costs associated with room and board and required equipment for certain majors. Community college may be the least expensive, especially if the child is able to live at home while they’re in school.
The cost of tuition is increasing every year. For the 2019–2020 school year, the average cost of tuition and fees at privates colleges was more than $41,000, while the average cost for in-state students at public colleges was about $11,000. That doesn’t even include living expenses, books, or spending money. If a student is able to cut housing costs by living at home and attending a community college, the average cost of tuition is about $5,000 a year.
It’s difficult to put a number on exactly how much you should save. The reality is most families simply don’t have the means to save enough money to fully fund a child’s education, especially if there are multiple children in a family who want to go to college. Most students pay for college with a combination of savings, grants, scholarships, and student loans, so don’t despair. When your student is a senior, they will fill out the Free Application for Federal Student Aid (FAFSA) and apply for scholarships. That should help fill in the gap between what you were able to save, and the cost of college.
No matter what kind of post-secondary education your child decides to pursue, it will help if they have some college savings, so they avoid racking up a lot of student debt. You’ll need to decide what works within your family’s budget. However, you can maximize college savings by putting the money in a savings account that will help you meet your savings goals.
There are many types of savings accounts you can use to save for future education expenses. The most common types of accounts are:
NC 529 Plans allow parents or grandparents to save post-tax dollars for education. States, including North Carolina, sponsor these investment programs, which include a mixture of stock and bond mutual funds. Earnings from NC 529 Accounts grow tax-free if the money is used for qualified education expenses.
The plan also allows for a substantial amount of money to be saved in each account, and the account owner retains control of the money, no matter the age of the beneficiary.
Coverdell ESAs are similar to 529 plans, because the money grows tax-free if it’s used for educational purposes. However, there is a $2,000 per year contribution limit and once the child turns 18, control of the account is transferred to the child.
Traditional savings accounts are easy to open online or at your local bank. Most accounts generally offer low interest rates but are FDIC insured. Funds in savings accounts do not grow tax-free.
Most financial experts agree that 529 plans, with their high contribution limits and tax advantages, are a good way for families to save for college. Discuss your college savings goals with a financial advisor to determine the best option that works with your savings objectives and risk tolerance.
Once you choose the type of account you feel will meet your savings goals, you will want to think about a savings strategy. Creating a plan to make regular contributions is a great way to add to the account, so the college fund will continue to grow.
First, what does ‘regular contributions’ mean to you? It could mean making a contribution every week, once a month, or a few times a year. Here are some ways NC 529 Plans help make saving a regular habit that fits within your budget:
As kids get older and start working part-time jobs during summers and the school year, they can add to their college savings account too. Some families agree on a policy that teens save half of their paycheck for college while spending the other half on things they want, such as video games and activities with friends.
An important question many parents ask is, “What happens if my child decides not to go to college?” This is a real possibility! However, ‘higher education’ doesn’t necessarily mean attending a traditional four-year university.
Some students will decide to pursue a career that requires skills and training through a trade school. That’s no problem! NC 529 funds can be used at any accredited trade school, in or out of North Carolina.
Leftover funds can also be transferred to a sibling or another family member. Would you like to go back to school once your children are grown? NC 529 Accounts can be used to pay for your next career! And as of 2019, NC 529 funds can even be used to pay on student loans for the beneficiary or their sibling. There are so many options and ways families can use NC 529 Accounts.
Are you ready to start saving for college with NC 529? Enrolling takes just a few minutes. Click here to learn more about NC 529 and get started today.