1. Find ways to cut back
Examine your budget for ways to save money. Can you postpone buying a new car, or skip that summer vacation and put the extra money toward college? Even small changes to your habits, such as cutting back on dining out or other leisure activities, can result in hundreds of dollars saved each month.
2. Get friends and family involved
If you have a Section 529 college savings plan for your teen, suggest that relatives contribute to it instead of buying a birthday or holiday gift.Footnote1 529 college savings plans, offered through Merrill Edge®, are flexible, tax-advantaged accounts that allow you to make high contributions to help you pay for college expenses. You won't be taxed on your funds as they grow—and you pay no federal (and often state) income taxes on withdrawals used for qualified higher education expenses.
3. Apply for financial aid
Millions of dollars in student aid are available each year. Most schools award aid based on the Free Application for Federal Student Aid (FAFSA) form, so be sure to file the FAFSA before the deadline—typically June 30.Footnote2 Many states and colleges have earlier deadlines for state and institutional financial aid, so it’s recommended that you fill out your FAFSA as soon as possible after January 1. (A high percentage of aid is on a first-come, first-served basis.) Also look for private scholarships and grant opportunities based on your teen’s interests and hobbies.
4. Consider different college choices—and future debt levels
Talk to your teen about school choices and setting realistic expectations. Some schools may offer more robust financial aid packages, but you might also want to discuss other potentially lower-cost possibilities, such as in-state colleges or community colleges (with the option to transfer to a four-year school later on) to keep your family’s debt levels in check.
Bear in mind that Americans owe more than $1.2 trillion in student loan debt, according to the Federal Reserve Bank of New York.Footnote3 In 2013, nearly 70 percent of graduating seniors from public and private universities had student loan debt, with an average of $28,400 per borrower, according to The Institute for College Access and Success.Footnote4 Those figures continue to grow.
Student loan debt is something your child will probably have to contend with after school. Be sure your student understands how minimizing this debt can provide greater flexibility after graduation.
5. Get your teen involved
Your teen will benefit directly from a college degree, so get him or her involved in paying for it. Encourage your student to explore summer jobs and work-study opportunities, and to apply for grants and scholarships in order to minimize student loan debt.
6. Don’t forget to keep saving for retirement
You may be thinking about using your 401(k) or IRA to help fund your child’s college education, but there are drawbacks. If you are younger than 59-1/2, you’ll probably have to pay a 10% early distribution penalty, as well as income taxes, on those funds. Furthermore, once that money is spent, it is gone. Even if you don’t plan on touching your retirement accounts, resist the temptation to put all your spare funds toward your teen’s college education: While there are options to help pay for college, only you can fund your retirement.
Feeling like you’re behind in saving money for college can be a source of anxiety, but there are options and solutions. Interested in learning more about 529s and other college savings plans? Find out more about Merrill Edge college savings plans.