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Saving for College
If you’re like most parents, saving for college can seem as daunting as saving for retirement. As the cost of college continues to rise faster than inflation, how can you save such a large sum of money in such a limited amount of time?
Just like your other financial goals, this one also starts with a plan.
The first step is to answer some questions to get the essential parts of your plan in place.
- How many children are you planning to send to school?
- How many years do you have until the first one reaches college age?
- How many years are you going to fund?
- What kind of school are you going to pay for?
- Are you planning on paying for all four years or will you ask your child to foot some of the bill, and how much?
Just as the cost of college has gone up, fortunately, the number of ways to save for college has also increased. If the initial sticker shock of tuition has left you breathing into a paper bag, you’re not alone.
Creative Savings Solutions
Before you dive in trying to save that $135,000 ticket for junior’s education, a good place to start is to see if you can get that tuition bill a little lower right from the get-go. Here are some ideas on how you can do just that.
It’s not about where you started, but where you ended up
When employers review a resume, they care about where you were graduated from, not where you started out. One way to trim college costs is to attend a community or state college that has lower tuition rates for the first two years, then transfer to the “better” school in your third year.
Not only is it easier on the four-year wallet, it can also improve your student's chances of being admitted to the more prestigious school. Transferring students often have a better chance of being admitted than do freshmen because they’ve proven that they can handle college-level work.
Don’t pay to take the “basics.” Just test out of them.
You could save as much as a year's worth of tuition by getting credit for what your student already knows. The College-Level Examination Program allows a student to take 90-minute exams to get credit for core subjects that are typically studied in the first two years of school. Your student then can narrow the focus to a major course of study by getting many of these core requirements out of the way.
You save big on tuition bills. But before your student takes these tests, check with your target college to be sure they accept these credits, or if the college will only accept certain credits.
Pre-pay and Save?
Many colleges let you pre-pay your four years of college. And depending on just how early you pre-pay will determine how much you can save. Paying in full early could net a substantial savings over the four years.
The downside to this option is that many of these plans have restrictions if you change your mind about going to that school. And it’s pretty hard to know what college your child will go to when he or she is 7 years old.
In addition, these plans normally cover a “basic” four-year package, so changes in your child’s academic career, such as extending into a fifth year or summer courses, may not be covered.
Starting Early
If you plan early, you have more options for paying for college. In many states, you can use today's dollars to pre-pay for in-state tuition. As with the other pre-pay option, if your child decides to go to an out-of-state college, you get your principle back, but with very little interest.
There are also some other plans that help you save for college.
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