How to Save for Your Kid's College Tuition If You're Not Felicity Huffman or Lori Loughlin College costs a bundle these days. You should be planning for it just the way you plan for your company.
Opinions expressed by Entrepreneur contributors are their own.
The cost of a college education is higher than ever -- just ask Felicity Huffman and Lori Loughlin. Those two celebrities are among the well-heeled parents caught up in a now-infamous "Operation Varsity Blues" college admissions scandal. You know what this is: The whole nation has been gobbling up news reports about the $25 million scheme for the past week.
Related: This Business Owner Is Paying for His Employees' Kids to Go to College
Perhaps as an entrepreneur and ordinary civilian, you yourself have felt the pain of getting your son or daughter admitted to college, then figuring out how to pay for it. The latter task is particularly tough: Over the past 10 years, the average price for tuition and fees at four-year private colleges and universities has jumped to $34,740 a year, up more than $7,000, according to statistics from the College Board.
Furthermore, for college graduates, on average, annual tuition has totalled nearly $30,000 at public colleges and $40,000 at private schools, according to Peterson's blog.
If you want to make sure that neither you nor your child ends up with piles of crippling student loan debt, you'll need a comprehensive savings strategy to help bridge the gap between inadequate finances and rising expenses. Fortunately, there are several different methods to help you do that.
By choosing one that works for you and your family, you can come up with an approach that will give you the best possible chance to afford tuition and let your offspring leave their ivory towers debt-free. To help filter out the noise and make smart savings decisions, here are four savings options to consider.
Invest in a 529 savings plan.
College has always been expensive, and as noted, it's only continuing to rise in cost. That's why considering a 529 plan is more important than ever. Also known as a qualified tuition plan, a 529 allows you to put away money for your child's college education that grows completely tax-free. Total investments in 529s reached a record $328.9 billion this year, meaning people are increasingly understanding the benefits. Currently, 30 percent of college savings are in 529 plans, with the average amount saved in such investment plans having nearly doubled from 2016.
Related: This Teen Paid for College by Selling on Etsy. Here Are 5 Ways She Did It.
The 529 plan is an example of how you can let your money work for you, because your investment earnings compound on a tax-free basis. Additionally, the money invested iis "portable." Parents can transfer their 529 plan's beneficiary status from one family member to another via a plan-to-plan rollover.
This flexibility is helpful for those who are uncertain about the future. That said, if you start a 529 plan when your child is born, you have 18 years to let that money grow.
Start ASAP and automate.
Saving for college is a long-term process, but the key is starting early. In 2018, the average amount parents saved was around $18,000, up more than 10 percent from 2016 -- and at its highest amount since 2013. Those savings represent just a fraction of the overall costs of college, meaning everyone could benefit from starting even earlier and saving even more.
To get stared, make the process easy for yourself by setting up automatic transfers. There are various applications and tools that can help you set a goal and automatically save the amount you designate According to a Sallie Mae survey, 6 in 10 parents make regular deposits to their children's college funds. This is important, as sticking to resolutions is much easier when you take this action regularly, especially when that action is automated.
So start saving now, because every dollar saved is one more dollar you won't have to come up with later down the line.
Don't overlook scholarships.
Scholarships are essentially free money that you don't have to worry about paying back. While they usually don't cover the complete cost of schooling, they definitely accelerate the process.
A wide variety of scholarships are available for students, and many are tailored to your child's needs or achievements. Whether he or she has excelled in community service or is a talented athlete, multiple scholarships are available for you to research. Make the most of Sophie's or Stevie's talents, and take the time to uncover your scholarship options.
For the Class of 2018, 69 percent of those students took out student loans and graduated with an average debt of $29,800. Scholarships, in fact, could be especially helpful for a young person looking to start a business. In fact, someone with $30,000 in student loans is 11 percent less likely to start a business than a person who graduated debt-free. A scholarship can mean the difference between leaving school without debt and leaving with heaps of student loans.
If saving for college or graduate school seems too daunting a task, ask yourself what sacrifices you can make to get closer to your goal. For example, cut out unnecessary luxury expenses you can live without. These might include frequent nights out, shopping sprees, that daily Starbucks latte and other lifestyle luxuries.
Also look for ways to make additional income. Consider a part time job, a small in-home business or perhaps a clever way to make use of your unique talents (children's birthday parties?). Freelancing or finding a side gig are great options that are gaining popularity. Nearly 4 in 10 Americans have a side hustle to help them meet their financial goals. These sources of additional income can go a long way toward helping you put more money aside.
Saving up for college and graduate school requires smart and strategic thinking, and the sooner you plan, the better. In fact, 37 percent of parents are putting money aside for college before their children even reach the age of 2. Getting a jump-start decreases the risk of falling short when tuition is due.
Related: These Are the Priciest Countries for a University Education
By using some these college savings tips, you can improve the chances that your child will get through school debt-free and be in a good position to start a career with financial stability.