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Back to School Means it's Time to Save

Back to School Means it's Time to Save

I love this time of year. With children and parents returning to their classrooms and work, it's the perfect reminder to parents about the need to plan for the costs of higher education.

According to a recent study conducted by the U.S. Department of Education, the average tuition cost of one year at a public university is north of $15,000 and a private institution is approximately $33,000. Consider also that these costs have grown over the last decade at an average annual rate of 6.5%, outpacing both inflation and wage growth. This means that for my twin boys entering Kindergarten this year, when they reach college age it is likely that one year of public tuition will be over $44,000.One year of tuition at a private university may reach close to $130,000.These are daunting figures.

The costs associated with college may seem discouraging, but they are important to understand. Regardless of one’s financial condition, the best results are often achieved when a plan is initiated at the earliest possible stage, and it is never too late to start.

[Related: The Case for Investing Over Saving]

For parents of young children, 529 plans have become popular tools to save for education.These state sponsored plans offer tax advantages and are even transferrable among family members. Education Saving Accounts also offer certain tax benefits, but differ from 529 plans in their contribution limits.

Student loans too, are an important tool, but come with a cost.The burden of carrying debt for a young adult entering the workforce handicaps their path toward financial independence, a goal every parent has for their children. Merit and performance based scholarships and financial aid packages may also play a role in covering some of the costs of college, but cannot be guaranteed and should not be fully relied on. Other strategies to set aside money for education exist and vary in their complexity and have benefits and limitations all their own.

Since every family and child is unique, it's important to take an honest and thoughtful approach to saving for higher education. Starting early may ease the burden as parents can take advantage of opportunities and programs specifically designed for this purpose. Parents and others who are thinking about funding education expenses should try to be as informed as possible and carefully consider both their options and their own financial situation and future objectives when deciding on appropriate levels to set aside for education costs.

Have more questions? Follow up with the expert herself.


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