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In saving for college, a parent should keep in mind that a college education is an investment in the future of their child. Over time, a college-educated person will make about $1 million more than a high-school graduate. Two key components will help a parent save successfully: time and consistency. If a parent starts early, as early as the day a child is born, and saves monthly in the years leading up to college, a significant amount can be amassed. Nationwide Biweekly Administration points out key ways to save for college include:
· Consider using a 529 account. This type of college account allows savings and interest to accrue tax-free. Withdrawals for higher education are tax-free also. You may also want to consider Coverdell Education Spending Accounts (ESA’s), State Prepaid Tuition Plans, Savings Bonds and certain government programs, like Lifetime Learning tax credit and Hope Scholarships.
· Remember that it is cheaper to save for college ahead of time than to take out loans and pay them off afterwards. When you save for college, the account can accrue interest. When pay back a loan, you pay interest to the bank, says Nationwide Biweekly Administration.
· Look for rewards programs that link your credit, debit, gas and grocery card to a college-savings account. These programs give a small percentage back to the consumer in the form of deposits to the designated account.
· Remember that student aid won’t be enough. Nationwide Biweekly Administration says that while your child may qualify for scholarships and financial aid, it is still the primarily the parent’s responsibility to help pay for their child’s education. You do not need to assume the full cost, as that usually is not realistic nor ideal for your child. However, you do not want your child to start their adult life saddled with crippling student loan debt.
· In setting up your college savings account, Nationwide Biweekly Administration recommends using the “one-third” rule. If you assume that your child will attend a school costing $30,000 per year, assume that 1/3 of the money will come from your college savings, 1/3 from current income and 1/3 from student aid and loans. This makes your goal more attainable and not as “scary.”
· Age-based asset allocation can help you use the stock market to your advantage. Over time, using history as a guide, the stock market will go up. While the market is certainly volatile, don’t miss out on the opportunity for a higher rate of return than other savings vehicles can offer. The key is to balance your investments based on the age of your child. The closer a child gets to college, the lower the stock market allocation should be.
· Set a college-savings goal. Setting a goal is important because it will help you decide what amount to contribute monthly and to see what is realistic. Don’t get overwhelmed in thinking about total college costs; remember that saving early and often is better than not saving at all. Nationwide Biweekly Administration.