Tips To Avoid Student Loan Debt

As a parent, it is your dream and hopes that you will be able to give your children everything they need in life. It involves great sacrifice on your part and in most cases, never works out the way you plan it. Have you started saving for your child’s college education?

As things stand, almost 50% of American parents say they intend to start saving for their child’s higher education, but do not know how to go about it. Most households get torn between saving for retirement and saving for college.

In this unfortunate tug of war, the likely loser is always the college fund. Since the government and several other financial bodies could come to the aid of your child as far as college education expenses are concerned, most parents figure that it is okay to let their children fend for themselves on this front.

But scholarships are a fraction of the education cost and often good scholarships have very tough selection criteria.

The problem with this strategy is that you are sentencing your child to start life as an adult in deep, almost insurmountable debt. Not the best way to give your child the best chance to succeed in life.

If you’re in public service, you can apply for student loan forgiveness.

How can you start saving for your child’s college fund today?

Unfortunately, this scenario plays out more often. In many instances, it could be a matter of simply not having enough money to save for that all-important college tuition.

The cost of higher education is rising. Today, the average cost of tuition per year stands at around $9,000 and shoots up to about $30,000 per year if your child qualifies to join a private university.

If they intend to study out of state, that $20,000 goes up to about $80,000. And you haven’t factored in living expenses.

It is not the kind of money that you can take lightly. In a perfect world, you would start saving for college as soon as your child is born.

We started saving well before our son was born. I now have almost half of his college fund need set aside in a taxable investment account.

If you can put away $10,000 each year for the first 18 years of their lives, they will have more than enough to pay for whatever college they want to attend and even have enough money for upkeep.

But, our world is not perfect and as such, must contend with our lot in life.

The fact that you are not a millionaire does not mean that you still cannot give your child the best possible start.

There are many different ways through which you can start saving for college today and substantially reduce the amount of debt you and your child will incur in the name of their higher education.

Things You Can Do Now

Unless you are willing to gamble on the fact that your child will qualify for Federal Student Aid or that they will get hefty grants from whatever college they qualify for, the best chance you have is to start saving now.

And there are no set rules here. You can save as much as you can and through as many avenues as possible.

Here are the three most useful and valuable saving avenues (vehicles) that will help take most, if not, all of that college fund burden of your child’s shoulders.

Invest in a 529 plan

A 529 plan is like the IRA of college funds. Several states and colleges offer up these programs that can help you save towards your child’s future education by investing your money in different sectors of the market.

Every 529 plan is different, and you may have to do lots of research before choosing the one that best serves your purpose.

The good thing about 529 plans is that, in most cases, you can save in plans from different states. In short, you do not have to choose a plan from the state in which you think your child will be attending college.

For example, you could find the 529 plan in Connecticut more favorable than any other and as such choose to invest in it.

But when the time comes, your child decides to go to a college in Florida. In this case, you can just transfer your savings from Connecticut to pay for the college in Florida.

There are also college specific 529 plans that allow you to start paying off tuition fees even before your child gets admitted.

They let you pay off the tuition at the current rate as opposed to dealing with the inflated figures that will prevail 8-10 years from now when your child will be enrolling.

The plans make it easier for most parents, but the downside is that your child might choose to go to a different college altogether.

Even though you can withdraw your money and transfer it to the college of your choice, it will not have grown much and as such might leave you with a massive borrowing deficit.

All in all, 529 plans are some of the best ways to start saving for college. Additionally, they give you a chance to delve into the world of investment as you get to choose what that money does for you while it waits for your kid to get old enough for college.

Open UGMA and UTMA accounts

UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act) are trusts that you can open for the specific purpose of putting your child through college.

These accounts can hold assets such as stocks, annuities, bonds and even cash. There are no limitations to how much you can save in these accounts.

The downside, however, is that these accounts are taken into consideration when determining the amount of financial aid. But, if you are doing it correctly, your child might not even need funding at all. You save in as much as you can over the years and just let it grow.

Get your child to pitch in early

One of the best lessons you can offer your child is to teach them how to save up for what they want in life. By creating a pulled college fund savings plan between you and them, you will be achieving two things:

• You will be teaching them the value of money, hard work, and saving.
• You will be implanting the idea in their head that they must go to college.

Obviously, when using this plan, you will have to do the heavy lifting, but it is still a good way to start them off early and let them learn just how sacrifice works to their benefit.

All these avenues might not fully cover the kind of tuition fees that many top-tier colleges will require by the time your child is old enough to attend. But they will, at the very least, reduce the amount of borrowing you have to do when the time comes.

Cut down on college expenses

Have your child learn personal finance, while he/she is in college and thus cut down on unnecessary expenses.

With a number of expenses you make on a regular basis, you’ll be in a position to decide which ones are necessary for you and which ones can be scrapped by you.

It is up to you to decide on the type of expenses you cannot live without and get rid of those expenses that should not be a part of your routine.

In such cases, it depends on your situation and if you feel there is a need for you to spend money on them; don’t think twice because your career is at stake.

So, be careful with the selection.

Couple these with student aid, scholarships and grants, and your child might just make it through college without debt on their shoulders by the time they graduate. Add to it, some ways they can also earn money while at college.