Only 48% of parents have saved money for their children’s college education. As a result, when college days finally arrive, nearly 60% of parents take the hit and cut back their discretionary spending.
Others, around 40%, take personal loans, postpone retirement, or take a second job in anticipation for loan repayment. Don’t wait until the federal loans fall due. Do something now.
Learn a Better Way to Pay for College
Even if it’s too late to start saving, you don’t have to take a nosedive into debt. Consider this:
The cost to save $10,000 over the course of 10 years at 7% interest is $58/month.
On the other hand,
The cost to repay $10,000 over the course of 10 years at 7% interest is $116/month.
It doesn’t matter when you start saving, just that you do start saving. Just because your child is about to, or already has started college doesn’t make it too late to save for education.
Put Money Away Each Month
Set a little aside with every paycheck that’s dedicated to repaying school loans. Every little bit helps. Determining exactly how much you save will take a little number crunching and maybe the help of a financial advisor.
A college fund planner can help you sidestep mishaps with your savings so you don’t underestimate just how much your child might accumulate in loans. They’ll help you calculate things like tuition increases and other costs that increase overall loan amounts.
Seek Out High-Yield Savings Accounts
Your typical savings account barely gets 1% interest each year. The higher the interest yield, the easier it will be to pay off the loan later. Check with your financial advisor or college financial advisor to find the best places to put your money for high interest yield. These may include
- Money Markets
- Certificates of Deposit
- Savings Bonds
These types of accounts give you a slightly better interest rate, but certainly not as good as 7%. If you can afford the risk, check into much higher-yield rates that will maximize your savings. Get creative with these options:
- Rewards checking
- Bank incentives
- Internet banking
- Shop around for better interest rates
- Get a financial advisor to help invest in the stock market
- Mutual Funds
Take Advantage of Tax Breaks and Loan Repayment Incentives
Each year you are repaying a student loan, you can deduct the interest paid on your taxes. If your income is less than $75,000/year if you’re single or $155,000 if you file jointly, you can deduct up to $2,500 a year you’ve paid in interest.
If loans have not fallen due yet, consider making interest-only payments while your child is still in school. You can take the tax break, plus you’ll ease future burden.
Check into the repayment terms on your child’s loan. If you opt for automatic withdrawal (or other such programs) you may be eligible for an interest rate decrease which brings down total repayment even more.
Pay for College
Keep your 401k. Paying for college doesn’t have to change your way of life now or in the future. Proper planning, no matter the stage of life you’re in, can make paying for college doable.