Planning for Higher Education
When should you start making plans for a child’s higher education? Probably the best present you can give your child on their first birthday is the start of a college fund! The costs for a higher education are increasing much higher than the inflation rate, so you will need to consider your children’s needs as soon as possible. With the way costs are increasing, it is becoming less and likely that parents will be able to fund all of the costs of a higher education, as was often the case in the past. More likely the average student’s needs will be handled by a combination of parental funds (whether saved or borrowed), scholarships, grants and student loans. More students than ever will probably be working in order to help put themselves through school.
Saving and Investing
Using a saving and investment program and by taking advantage of compounding, not only will the amount you need to put aside be much smaller on an annual basis (more years) the funds you do put aside will have a much longer period of compounding. Example: If you invest $100 per month at an 8% annual return, and your child starts college at age 18, the funds you will have available would be:
Begin investing at age:
Total funds available at age 18
If you wait until age 12 to begin a savings/investment plan for your child (about the time many families begin to consider it) you will have to save almost 5 times as much–nearly $500 per month, to have the same amount of funds available had you started the process at age 1.
Prepaid Tuition Plans
In the last few years a number of states have begun to offer prepaid tuition plans for those parents who want to spread college tuition costs out over a number of years while their children are growing. The plans will vary widely from state to state and have different policies regarding transfer of funds and cancellation. Make certain you get all of the particulars before you begin to invest in one of these plans.
Here are some contact numbers and Web Sites of some of the State prepaid tuition plans. Other states are studying feasibility or are in the processing of implementing plans. If your state is not listed, contact your State Treasurer’s office for information.
Home Equity Loans
As interest rates have declined, real estate values increased and most importantly, annual college costs gone through the roof, parents have looked for ways to pay for, or assist their children wanting to go to college by taking advantage of a home equity loan. Although a home equity loan can be an excellent source of funds, it should not be taken lightly since you will be adding additional debt to your home. This is especially important if you have recently purchased the home and do not have a great deal of equity. For many parents, though, it can be another avenue for funds, along with traditional college loans and savings. You can find out more information on home equity loans (and lines of credit) as well as get up to 4 offers competing for your business, at LendingTree.com.