College costs in the U.S. are on the rise. According to the latest College Board survey, the average price tag for an in-state public college for the 2014–2015 academic year averaged $23,410, and a private college averaged $46,272. This is a 3 percent increase from the year before.
Another number on the rise is student loan debt. Nearly seven in 10 graduates from the class of 2013 took out institutional, state or federal loans, graduating with an average $27,667 in debt.
Here are a few strategies to get a head start on saving for college that can help you avoid drowning in debt:
Estimate costs: Tuition and fees take the lion’s share of your income, with annual costs rising at about 6 percent. Start comparing public, private, community and in- and out-of-state schools to get a ballpark figure on cost, and then you can start to estimate how much you need to invest based on your timeframe and budget. There are tools and resources online to help calculate these costs, and you can always consult a financial professional for further guidance.
Start saving and investing now: With college costs on the rise, saving and investing now can pay off later. That’s because starting early allows more time and opportunity for your investments to grow — and can reduce the amount you have to borrow. Remember, it’s never too soon or too late to start saving. Every dollar saved is one less you may need to repay with interest, and automating your savings and investments will help to make sure you don’t forget.
Consider a 529 plan: Whether investing for a child, grandchild or even yourself, 529 college savings plans are flexible, tax-advantaged accounts that allow the investor to make high contributions to help the recipient pay for college expenses. These funds aren’t taxed as they grow—and no federal (and often state) taxes are applied to withdrawals used for qualified higher education expenses. It’s also a great gift alternative for holidays, birthdays and special occasions.
Borrow with care: While it’s cheaper to save than borrow, student loans can be an important tool to help close any gaps between your savings and the cost of tuition. If paying cash for college means skimping on another financial priority — like your retirement savings — student loans can help. Some options allow the student or parent to begin paying off the interest while they’re still in college, so be sure to explore the different types of loans to find the one that’s right for your situation.
Balance college savings with other life priorities: Investing in your or your children’s education is a goal that should be set with other life priorities. Instead of tapping into your nest egg to cover tuition costs, consider all funding sources to avoid jeopardizing your financial health, including financial aid, grants and scholarships. Seek the help of a financial professional to assist in balancing your goals with your finances.
It’s never too early to start preparing for the cost of college. Whether you have a 2-year-old or 16-year-old child at home, or if you’re thinking about going back yourself, college is a worthwhile, but significant investment that requires financial preparation.