Private college tuition costs are increasing at a rate that far exceeds the rate of inflation. Many parents forgo sending their children to private college because the price tag is daunting. The best way to save is to have a long-term plan for saving.
According to Financial Author David W. Bianchi, who wrote Blue Chip Kids: What Every Child And Parent Should Know About Money, Investing, and the Stock Market, “The cost of private college tuition continues to soar faster than the rate of inflation. Many of the top schools now cost $65,000 per year; that is $100,000 in pre-tax money.”
There are options out there to help with the college costs.
• New York’s 529 Savings Plans are a great way to start when you child is born. You benefit from the tax-deferred savings. The account can grow over 18 years until you need it. The major downside is that the account can decrease based on the fluctuations of the stock market.
• Coverdell Education Savings Account (ESA) is tax-free and has an annual maximum of $2,000. The funds must be used by the time the beneficiary is 30 years old and the money can be transferred.
• Savings accounts set up in a child’s name are a simple way to save up all those birthday checks from the grandparents. The downside is the money earns a laughably low interest rate.
“It is essential that families start saving very early on,” said Bianchi. “With the power of compounded returns over 15 years or so, a disciplined saver and investor can build up a college account that will minimize the need for student loans. Student debt is a crisis in our country with more than $1.3 trillion outstanding and many students will never be able to pay off what they owe. Start saving now and consult with a professional financial adviser to help get you there.”