It’s a classic bad dream: You arrive at school and have to take a final exam in a subject for which you’ve never cracked a book. If you have kids heading to college in a few years, you may find yourself feeling unprepared again, only now you’re wondering if you’ve saved enough to cover their education expenses.
Well, you’re not alone. The average amount saved in college funds is just $16,380, as reported in Sallie Mae’s “How America Saves for College 2016” study. That’s hardly enough to cover the average cost of four years of tuition and fees at a public college in-state ($37,640), let alone four years at a private college ($129,640), according to the website College Board.
If, like many parents, you find these totals intimidating, focus on covering partial tuition or other school-related expenses. Keep in mind that every dollar saved is one less dollar you or your student will have to borrow. Here are five steps you can take to keep from failing:
Saving, rather than borrowing, is preferable in the long term. Money that's been set aside or invested has the potential to earn interest or returns. Taking loans, on the other hand, requires you to pay interest down the line.
“Saving for college on top of retirement and all the other day-to-day expenses can feel overwhelming,” says Kris Spazafumo, senior manager of Investment Services Wealth Management at Capital Group. “However, saving is a much better deal than having to borrow to pay tuition.”
2. Take Advantage of Tax-Advantaged Savings Accounts
A tax-advantaged account can help you protect your gains. The good news is that there are multiple choices, and none of them is wrong. Choose what's most practical for you, depending on your situation.
Getting started doesn’t have to be complicated. Arrange for automatic transfers from your checking account or payroll deductions. When you get a bonus or a raise, try to step up your giving.
3. Let Friends and Family Lend a Hand
Suggest the gift of college through contributions to a 529 plan. More than ever, family and friends are embracing this thoughtful option. Grandparents, especially, may be interested in leaving a legacy.
4. Be Practical
As your child's college years draw nearer, it’s wise to focus on more conservative investments to protect the money you’ve already saved from a potential market downturn.
5. Lower the Cost of College
Tuition prices might be giving you sticker shock, but there are options that can help make college more affordable. If you haven’t already done so, give the following suggestions some serious thought:
Catching up on college savings might feel like studying for an exam at the last minute, but making the effort now could put you ahead of the class in the future. It’s not too late to work toward improving your grade.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.