Disclaimer: This post may contain affiliate links. I would earn a little money with no extra cost to you. The opinions expressed are my own. Read my disclaimer to learn more.Do you know how much college costs?
Do your kids really know how much college costs?
The quick answer, a lot. The long answer is, it’s complicated. It depends on the answers to so many questions.
Is your child planning on going to a private or public college?
Will he/she be going to an instate or out of state University?
Does your child want to go to a 4 Year University or a community college?
These questions are just the tip of the iceberg. There is so much to consider when calculating the ridiculous costs of college that it’s just too difficult to predict the exact costs.
Seriously Though, How much Does College Cost?
According to a recent survey by College Board, the average costs for ONE YEAR of college was $24,610 for the 2016-17 academic year. YIKES!!! If you’re thinking private education is the best route, look to drop $49,320 for the year.
No wonder the average 2016 college graduate had $37,172 in student loan debt!
A lot goes into these numbers such as tuition, room and board, books and supplies, and all of the fees. Still, that’s a huge freaking number.
Those big scary numbers are based on a 4 Year University, so if you’re looking at a community college or tech school, the costs will be significantly lower.
Maybe you can relate to one of these situations:
- College is expensive: I’m living paycheck to paycheck. If I can’t save money for myself, how can I do it for my kid? How can I do it for multiple kids?
- The gap between inflation and student loan inflation is increasing. Student loans are inflating at a higher rate than inflation
- How can I save money for college if I’m still paying off debt?
- How can I prioritize saving for college vs saving for my own retirement?
- I still have student loans, I don’t even want to think about my kid’s student loans!
- How will my kids pay for college?
- How much can I contribute to help them?
- Should I even help my kids pay for college?
- College is expensive now, how much more expensive will it be when my kids are 18?
Feeling overwhelmed yet? Sorry about that. Hopefully by the end of this article you’re feeling more hopeful. Let’s dig deeper and find a better way to get your kids to college.
Saving for College is Harder if You Don’t Plan Ahead
I always envisioned going to college. I can’t remember a time when I didn’t “know” I would go to college. It was just a natural progression of my life goals after high school.
However, I never took the time to think about how much college would cost. And I’m not sure if my parents did either. Maybe they did, but they never talked to me about it.
To be honest, my family never talked much about money, so it’s not surprising that we never sat down and talked about how I would pay for college, and if they could help or not.
Confession: In high school I wasn’t the most motivated person, so didn’t actually save up any money. I maybe had $1,000 saved when I packed my bag and headed to my dorm room.
As a result, I had no money to actually pay for college. So I applied for financial aid and signed on the dotted line for a bunch of student loans. At the time, I had no idea the horrible financial situation my student loans would put me in six years later.
As you can see, I didn’t do a very good job of planning ahead. I didn’t save up for college, and I didn’t apply for any scholarships. The good news is, you don’t have to be like me. Please, please don’t be like me.
What Can You Do to Start Saving for College?
First off, start as soon as possible. This probably goes without saying, but I’m still going to say it. It’s really easy to think of your kids going to college as a long way off. In reality, it is. 18 years is a long freaking time!
However, if you think of it as being a long way off, there’s a much higher chance you won’t seriously invest time and effort to save money. As a result, you might be in big trouble when your kid is ready for college.
Even as little as $25 a week adds up to $23,400 by the time they turn 18. And if you invest that money instead of letting it sit in a low interest savings account, it will be worth even more.
Research shows that kids are more likely to start and finish college even with $500 of college savings. In the grand scheme of things, that’s hardly a drop in the bucket, but if it improves their chances I’m willing to invest!
Moral of the story, it’s important to invest in saving for college, even if it’s just a little bit.
Does Anyone Actually Save for Their Kids College Education?
I asked friends and family three questions about saving for their kid’s college education. Here’s a brief summary of the most common responses.
Are you planning on saving for your kid’s college education?
- Everyone I asked said yes to this. A few added that they plan to teach and encourage their kids to save for themselves as well.
- Some have already started saving, while others haven’t nailed down a plan yet.
- Yes, but I’m not sure what is a reasonable amount
If yes, do you have a plan set up?
- A few said no.
- Others had 529s, but closed them and opened Roth IRA in case kids don’t go to college.
- Currently putting money aside in a traditional savings account.
- Yes, but opted out of a plan that requires funds to be used for education expenses, especially if kids don’t go to college
- Have something set up, but don’t contribute regularly
What’s keeping you from saving?
- Nothing, we contribute regularly
- Contributing to their own savings goals instead
- Keeping up with regular bills and expenses
- Retirement savings
- Can’t afford to set anything aside
- Unsure what is reasonable or expected for parents to contribute
Thank you to everyone who shared your experiences. I really appreciate your feedback! You all rock!
Saving for College Made Easier: The 529 Savings Plan
A few people I talked with set up a 529 savings plan for their kids. Not long ago, I had no idea what a 529 was, but it’s going to change the way we save for our kids’ college education.
A 529 savings plan is designed to help and encourage families to save for their children’s college education. It’s primary purpose is to offset costs of tuition, books, fees, and other supplies.
529 refers to the tax code used by the IRS and shows that it doesn’t need to be taxed. Think of it like a Roth IRA for college expenses.
Instead of storing money in a traditional savings account, a 529 invests your money so the money you save works for you and will cover a higher percentage of your kid’s tuition than if you used a regular savings account.
Philip Taylor at PT Money explains it this way: “The 529 Plan is really the Roth IRA of the college savings world. Meaning, your savings grows tax-deferred and the withdrawals are tax-free as long as you use them for qualifying educational expenses. 529’s are a really good deal.”
There are Several Major Benefits to Using a 529 Savings Plan
1. 529s cover college expenses:
There are so many expenses that go into paying for college, as I mentioned earlier. So, which of those expenses can you actually use the 529 for? The good news is it’s a lot more than just tuition.
- Tuition and fees
- Room and board
- Computer and related equipment
Of course this isn’t everything, but holy cow is it a lot. Tuition, fees, room, and board make up a huge portion of college expenses, so most all of your child’s expenses will be eligible.
2. You can use it at a lot of different schools:
The general rule of thumb is if the school receives federal funding, then you can use your 529 plan to pay for expenses. A 529 is pretty flexible and can be applied toward universities, trade schools, and technical colleges. CollegeBacker can help you find out if your school accepts 529 funds.
3. It has minimal impact on Financial Aid:
Financial aid calculates the total estimated costs of college compared to the total expected family contribution. The difference between those two numbers determines aid.
Therefore, if the Department of Financial Aid believes there will be a major family contribution, your child will be offered less aid in the form of grants, scholarships, and loans.
Most students rely on some sort of financial aid to pay for college.
A 529 is considered a parent asset and is assessed at about 5% of the value of the total amount in the account, as long as it’s in the parent’s name. Compare this to a savings account in the student’s name which is assessed at around 20%.
There is still a slight impact, but it’s a much better route to go than a typical savings account.
4. It’s an investment, not just a savings account:
Money will gain more progress as an investment than a saving account. You have a better chance to keep up with student loan inflation. The costs of college are only going up, so this is a great way to get an advantage.
What’s the risk? I mean it is an investment after all…
If you’re feeling cautious about investing money instead of just putting it into a savings account, it’s okay. Any type of investment carries some element of risk, even retirement investing like IRAs and Roth IRAs. However, IRAs are pretty safe and secure investments that grow over time.
As PT Money said it earlier, 529s are the Roth IRA of college savings. If you have a Roth IRA, you know you don’t need to be an expert investor. When you invest every month into a Roth IRA, real experts actually manage the portfolio.
The same thing happens with CollegeBacker, as expert investors manage your portfolio and invest according to your individual goals. Investing tends to be more aggressive at first, but becomes more conservative as your kid gets older and closer to entering college.
For more details on a 529, check out Vanguard for a more extensive breakdown of features.
CollegeBacker is Changing the Way to Save for College
My big goal with this blog is to share experiences and resources to help your family get out of debt and create a legacy of financial freedom for your family. Therefore, I will only recommend a product or service if I truly believe in it.
I recently learned about an amazing company called CollegeBacker and I have to say, I’m pretty excited about what they have to offer! Seriously, I wouldn’t recommend them if I didn’t believe in what they do.
What is CollegeBacker and What Do They Do?
CollegeBacker’s mission is to help every family send kids to college. That’s a pretty admirable goal if you ask me. The company helps families create a 529 savings plan to give the gift of college to their kids.
Setting up a new account is easy and you can get started in less than 10 minutes. Seriously. It’s crazy simple. But don’t let that fool you into underestimating its potential and value.
Here are a few of the awesome features CollegeBacker offers your family.
1. Automatically Calculates Savings Goals:
The chart below is straight from the CollegeBacker website. Our child will be born in March, so it’s current age is 0. If our goal is to contribute $100 each month to its 529 savings account, CollegeBacker projects we will have roughly $45,000 when our kid turns 18, or 61% of the total costs.
CollegeBacker isn’t just a normal savings account. It’s an investment account, so it offers higher returns than a savings account.
I love that this graph also shows how the power of investing your money affects your returns! The difference is over $20,000! That’s HUGE!
You can also toggle between the different types of college. This image shows the calculations for an “In State Public University”. But you can also get estimates for “Out of State Public Universities” and “Private Universities”.
I mentioned earlier that it’s important to start investing as soon as possible. Well, this next graph shows why.
If we invest $100 a month, but start when our kid is 9 instead of right away when she’s born, we would only reach 33% of our savings goal.
It’s only half the time, but the amount is $30,000 lower! It’s great evidence that time in the market is crucial.
2. Invites Friends and Family to Give and Contribute:
You’ve probably heard the term, “it takes a village” when referring to raising kids. CollegeBacker believes the same is true for sending your kids to college.
If the costs of college are overwhelming, or you’re already having a hard time saving, invite the rest of your “village” to help.
When you create an account with CollegeBacker, you also get a unique link to your child’s 529 savings account. You can send this link to family and friends who are interested in donating money to your child.
The link goes directly to their account, so it’s easy to contribute whatever amount they want.
You’re getting ready to celebrate your child’s first birthday. Turning one is a BIG DEAL! Your friends and family are all gathered around your little munchkin and a giant mound of gifts. When you finish opening them, your one year old has a whole toy box full of toys, books, and clothes.
Of course your kiddo will fall in love with some gifts, and the outfits are going to be SO CUTE! But over time, your baby will move onto bigger clothes and new favorite toys.
The memories will be great, but the gifts will all eventually fall by the wayside.
Imagine instead you give your friends and families a more creative option to gift your child. You send them a link with your child’s 529 savings account and let them give the gift of college education!
It gives your friends and family a new option. Let’s be honest, gift giving stresses some people out, and giving money is WAY easier. Plus, now you don’t have as many loud, noisy toys to step on in the middle of the night! 🙂
You can even include the link on the birthday invitation. That way people can donate even if they can’t come to the party. Donations are accepted with debit or credit so giving is as simple as buying something on Amazon.
Now you’ve truly got the power of a village helping your child receive the gift of an amazing education!
And don’t forget about high school graduation. You can send the link back out to everyone on your grad party guest list!
3. It’s absolutely FREE:
Yep, that’s not an exaggeration or trick. There are no fees and no minimum contribution. You can start with as little as $1. Your account fees are donation based.
It says upfront, right on the front page of the website that you can pay $0-10 per month. You read that right, you can literally pay $0 each month without any fear of your account being closed. How cool is that?
This makes saving for college accessible to anyone! Contribute what you can, even if it’s only a dollar at a time. Every little bit helps!
One thing I love about CollegeBacker is that it’s meant to be accessible to ALL FAMILIES! This is all part of CollegeBacker’s mission to help every family send their kids to college. That includes YOU!
4. Bank Level Security:
This one is pretty important. Straight from the front page of their site, “We use state-of-the-art browser encryption technology, maintain secure servers with 24/7/365 staffing, and use identity verification services to protect your personal information. We never share your private data with any third party without your permission.”
Your personal information is important and private. CollegeBacker makes sure it stays that way.
Are You Ready to Give CollegeBacker a Try?
College is expensive and the sooner you start saving, the better! CollegeBacker is engineered to make saving for college easy, accessible for all, social, and even fun! What’s holding you back?
Let Me Know in the Comments
What do you think? How are you planning on saving for your children’s college education?