Laura Snead Morgan, Vice President of Communications, Savings, and Legal Affairs, College Foundation Inc.
October 29, 2019
When I was younger, I worried about a monster under the bed. These days, as I fall asleep, my mind goes through my responsibilities, and I’ll realize that my daughter’s birthday is in less than two weeks and I haven’t planned anything. Then I’ll remember that she’s in double-digits and my brain quickly moves from “How will I manage a sleepover with fourteen over-sugared, squealing 10-year-old girls?” to “How is it possible that we’re more than halfway to college?!?”
If you’re like me, you may have spent more than one night doing the math and wondering, “How will I pay for college? Can I afford it? Have I saved enough?” and, “Will I still be able to retire?” Worries like these can make you wish for the days when your biggest concern was the shadow in your closet.
It can feel overwhelming, but remember that you are not alone. Most parents face these same college financing fears. Thankfully, all kinds of programs are designed to help take the scare out of paying for college. Here are some helpful answers to your college questions to help you sleep easy.
A 529 Plan is the Smartest Way to Save
The surest, and easiest, way to save for college is with a 529 plan. A 529 plan is a tax-advantaged investment program designed to make saving for college easier. Section 529 of the Internal Revenue Code authorized “qualified tuition programs” to be sponsored by individual states, and we’ve been calling them “529s” ever since. Every state’s plan operates a little differently. One aspect all plans share is that they offer opportunities to invest funds and are tax-advantaged ways to save for college.
Now, unless you are in an FDIC- or NCUA-insured account, most investments in a 529 do include market exposure, which means there is both risk and reward. So you need to carefully select the options that correspond with your risk tolerance. Like retirement accounts or other long-term investments, 529 plans offer the possibility of greater earnings than simply stashing funds in a savings or money market account. Also, unlike your savings or money market account, 529 earnings are tax-free.
Don’t Sacrifice Retirement for College Savings
One thing that you shouldn’t do is put off your retirement saving to save for your children’s college. Grants, scholarships, work-study programs, and other opportunities are available to help cover the cost of college. If necessary, you or your child can take out a student loan to pay for college. These options aren’t available for retirement.
Don’t Be Scared Off by Savings Calculators
Many 529 plans have savings calculators to help parents plan for college. These calculators allow parents to estimate how their contributions and investments may grow over time. Of course, sometimes the recommended monthly savings can be a scary number! It is important to understand that most families are not able to save the full amount recommended by their calculator. This is OK, because there are plenty of options available to pay for college, and savings is only a part of the equation.
FAFSA is Your Path to Financial Aid
Grants and scholarships can have an enormous impact on the cost of college. The first step to qualifying for this free money is completing the FAFSA. The Free Application for Federal Student Aid is used for more than federal aid, it also applies to state-based financial aid, and institutional aid (grants or scholarships from individual colleges and universities).
Applicants can fill out the FAFSA starting Oct. 1 of each year. Remembering this date is crucial because time is of the essence. Schools and states have a limited amount of financial aid available. By completing the FAFSA early, students and parents can improve their chances of getting the maximum financial aid award. This extends to grants, need-based scholarships, work-study programs, and whether or not a student qualifies for federal student loans. Students who wait to complete the FAFSA may find themselves disappointed when the money is no longer there.
It’s OK to Pay What You Can Afford
There’s no getting around it. Eventually, even the most prepared families will find themselves opening their wallets and paying for part of college out of their current income. No one is expecting parents to foot the entire bill for school. Still, even paying a small amount out of pocket can go a long way.
Take the time to save what you can and see what financial aid you receive after completing the FAFSA. Once you’ve combined this with what you can afford to pay out of your current income, you can research student loans to find one that works best for you.
Understanding Student Loans Makes Them Less Scary
After completing the FAFSA, applying for scholarships, and budgeting what you can afford to pay for school, you may still face a gap to cover the cost of college. This happens to plenty of people. It shouldn’t be cause for alarm. When planned carefully, loans can be a valuable tool in paying for college that benefit parents and students alike. Before you apply for a loan, you should understand the different types of loans and carefully research the terms.
Paying for College is Nothing to Fear
Ultimately, students and their families should always remember that all sorts of options are available when it comes to paying for school. Between saving early, applying for financial aid, and, if necessary, choosing the right student loans, affording college is much more attainable than most people realize. Like any important goal, paying for college is best accomplished by planning early and taking it one step at a time. It all starts with saving for college, and the best way to do this is by starting a 529 plan today!
About the Author:
Laura Snead Morgan is the Vice President of Communications, Savings, and Legal Affairs for
College Foundation Inc., administrator of the NC 529 Plan.