Paying for college is one of the biggest expenses in your life. Whether you are paying for your own education or for your children, the decision on how to pay can be almost as stressful as picking a school. Starting early is key. Having a full 18 years to save up for these costs is a huge advantage for several reasons. First, it allows you to invest a smaller monthly amount, which means you won’t feel the pinch as much. Second, it increases the cumulative effect of compounding interest, or the expanding growth rate of your earnings.
The most common way to save when starting very early is a 529 plan. It’s an investment plan operated by a state designed to help families save for future college costs. As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant.
It’s up to each state to decide whether it will offer a 529 plan (or possibly more than one), and what it will look like. Every state now has at least one 529 plan available. 529 plans are usually categorized as either prepaid or savings, although some have elements of both. There are no income or age restrictions on 529 plans. Most plans operate on a monthly payment schedule that allows you to save significant amounts for college in a well-designed program. Contact your state education office to inquire about the 529 plan in your state.
So what if you don’t have a 529 plan and you need to pay now? Financial aid is an extremely helpful program that allows students to cover the cost of college, and additional costs such as housing, with a loan from the federal government. There are several types of loans and even some grants, which do not require repayment. The biggest advantage to student loans is that the interest rate can never go higher than 8 percent and is often even lower. Another advantage to financial aid is the extend time that you can pay back the loan through deferments and other options. One drawback to financial aid is the amount of money you make can influence how much aid is given. The more money you earn the less financial aid you are likely to receive. If you are interested in your financial aid options, you should contact the schools that interest you or FAFSA (Free Application for Federal Student Aid).
There are even more options for college. One is to get a private lender for necessary funds. These lenders can have much higher interest rates and a shorter payback time than financial aid, so shop carefully. Another type of aid is work-study where a student works part time on campus for money. One of the most obvious ways to get money for college is through scholarships. What is not so obvious is that there is a scholarship out there for everyone. Check with local businesses, national programs, and the plethora of internet sources to find one for you.
There are an endless amount of options when planning for college. And planning is key. You need to start early and keep your focus on the goal of education. However you pay for school, having the degree will be worth it. Planning ahead can get you the kind of education you want anywhere in the world.