If you have looked at how much it costs to send a high school senior to college in 2016, you may have found yourself clutching your chest in shock. A single year at a public school currently costs just under $20,000, and private colleges are more than double that. The bad news is the cost will only keep climbing. Are you scared yet? You don't necessarily need to be. There are affordable ways for you to start saving for your kids' college days right now. You just need to decide which method will work best for your family.
The 529 Plan
A 529 account is one of the most popular ways to start saving for college. These accounts work similarly to IRA or 401(k) plans and are tax-free as long as you use them for the qualified educational purposes. You choose from a range of investment options, including safe investments or more aggressive ones that switch to something safer when your child is closer to college age.
529 accounts are considered your asset because they are in your name. They can be used at any accredited 2- or 4-year college in the United States. If your child decides not to go to college, you have the option of changing the beneficiary to be another child who is going.
Open a Basic Savings Account
The most basic way to save for college is with a savings account. Many banks slowly build interest onto your savings, allowing you to save even more. You can decide to put a certain amount per paycheck in the account, or if it is an option, have every debit card purchase you make rounded up to the nearest dollar, which adds the excess to your savings. You could even use it as a way to teach your children about saving by having them save a certain percentage of their allowance or earnings from a high school job.
Use Your Life Insurance
Life insurance that carries a cash balance option can be used to pay for college, but it is not the right fit for every family. One benefit is that life insurance does not count in financial aid calculations for the first year of college, but it’s important to note that any cash you do take out is considered income for that year and will count in the next school year’s financial aid figures. It’s usually not a viable option for a well-off family who wouldn’t qualify for financial aid anyway, but could be beneficial for middle-class families.
This method works best for those who have long-term policies and plan to hold them for life. Determining whether life insurance as a means of paying for college is worthwhile for your family requires a complex analysis of your finances and needs. Whether you need a Chicago insurance agent or already have one, it is important to discuss the options with him or her before making a decision.
There are lots of creative ways to save for college, but these are three of the most common and are probably the easiest way to do so. The important thing is to save. Helping your child become the next doctor or teacher isn’t getting any cheaper.