By Stan Zeto, Deputy Executive Director, ScholarShare Investment Board
November 30, 2021
With the fall season comes a time when many high school seniors begin to apply to their desired colleges. This is a monumental time for students to embark on a special and pivotal step in their higher education journey. Although I do not have children of my own, I am lucky to have nieces and nephews. Over the years, I had the great opportunity to open 529 college savings accounts for them. Knowing that I can play some part in contributing to their future growth and success is deeply rewarding.
My oldest niece, who is now a junior in high school (that was quick!), has recently bounced around ideas of where she may want to apply to college and what she may want to study. This puts into perspective that she will be applying for college in just one year, and her family will be in the midst of college planning. This can be an exciting time, but it also underlines a daunting concern for both parents and students … preparing for the impending costs of college. Regardless of how prepared you think you are, it remains an overwhelming concern for families.
What better time for us to reflect on various tips that families can explore to maximize their college savings. Some tips to consider include the following:
- Estimate how much the total cost will be. Without a target, it’s challenging to hit the mark. Determine what the degree goal is, anticipated matriculation time, living arrangements, and future post-undergraduate goals. Once you know the plan, you can better estimate the total cost. Be sure to factor in other possible funding sources, like financial aid and scholarships.
- Set up automatic recurring contributions. Even though college may be just a couple of years away, you can still save and set up automatic recurring contributions from your bank account to make the saving process seamless. Determine the amount and duration that’s appropriate and set it and forget it. Plus, many employers partner with 529 plans to offer the option of recurring deposits to a 529 account directly from your paycheck.
- Seek out help. When special occasions come around, like birthdays, holidays, and graduation, recommend 529 account deposits as a gift idea to family members and friends who may want to play a role in contributing to your child’s college costs. Saving for college can be impactful as a group effort. Also, have your child apply for financial aid and scholarships each year. The more assistance your family receives, the further your savings will go.
- Look for other ways to save. When selecting colleges to apply for, evaluate other potential options, such as a community college. This can be a great way to save money as tuition at many community colleges is lower than most traditional four-year institutions or even free. You can have your child take Advanced Placement (AP) courses in high school or general education courses at a community college over the summer, which could minimize the number of courses required later. Every course not taken at a university reduces costs while also providing a longer time horizon to continue to save. Finally, consider used textbooks and open-box or refurbished deals for technology, which can be money-savers that add up.
- Encourage a part-time job. Money that your child earns from a part-time job can help with textbooks, food, or spending money. Having your child cover smaller items can allow 529 account funds be used for the larger ticket items, such as tuition and room and board. Studies show students who work fewer than 15 hours per week tend to have higher GPAs than those who don’t work at all. A job during college also improves time-management skills, makes the student more appealing to employers post-graduation, and at some colleges, the job provides class credits for related work experience. Having your child pitch in helps give them a heightened sense of pride, ownership, and responsibility towards their education.
- Monitor and use your savings strategically. Withdraw college savings funds later, possibly for graduate school or for the last few semesters. This strategy gives more time for contributions to add up and for savings to potentially grow, meaning more money for college. Larger lump-sum contributions can also offer valuable tax advantages. It’s also important to regularly monitor and re-assess your 529 accounts. Doing so will ensure your contribution amounts and the portfolios you selected continue to meet your investment objectives, as well as your diversification needs, risk level, and anticipated withdrawal strategy.
The cost of higher education continues to be an intimidating challenge. It may feel like the amount you’re able to put away will not be enough compared to the total cost, but any savings is better than no savings. Implementing some of the tips above may help to maximize what you have saved so far and plan to save in the next few years as your child graduates high school and enters college.
About the Author
Stan Zeto is Deputy Executive Director of the ScholarShare Investment Board, the state agency that administers California’s ScholarShare 529 college savings plan. Visit scholarshare529.com for more details about ScholarShare 529.