Since 1985 college tuition costs have risen over 550%. It’s a staggering increase that has made it extremely difficult for middle class parents to afford the cost of their children’s college educations. To compensate, students have been taking on more and more debt. Since 1999, student loan debt has grown more than 500%, which also coincides with a 150% increase in household debt. As a result, college students today will be graduating with more than $35,000 each in student loan debt and parents and families are more strapped then ever. A college education, however, remains a key tool for future financial success for your children. This means that careful planning and effort are required to give yourself a personal finance boost and to increase your savings and earnings potential.
Here are some tips to help you tackle the cost of tuition.
Cut down on expenses. You shouldn’t have to radically change your lifestyle to afford college. That doesn’t mean that there aren’t ways you can cut down on spending so as to increase your savings. Make a monthly budget of all your expenses and try to identify places where you can cut down. Maybe that means eating at home more often or choosing more affordable family vacations. Wherever you can reduce your spending will mean more money for college savings.
Start early and save regularly. It might seem obvious, but the compounding of interest means that the sooner you start saving for your children’s college tuition the better. It’s never easy saving though, so rather than putting money aside at random intervals, make sure and save regularly. Consider having a certain percentage deducted from your pay automatically.
Wise investing. While traditional savings accounts are secure and yield a return from interest, there are many additional ways to invest your earnings to pay for college like stocks, bonds and mutual funds or money market funds. Wherever you invest, make sure that it’s a stable fund or investment. You naturally want to avoid the draw of a high-risk investment in hopes of higher earnings when your child’s education is on the line. Also, look to take advantage of 529 plans, which are educational savings plans in which families can invest without the earnings being taxed as long as the funds are for college tuition or expenses.
Increase your earnings. We’d all like to magically earn more, but it’s easier said than done. Still, boosting your income so as to save more for your children’s college tuition might not be as hard as you think. The share economy has made it easier than ever to leverage the property and resources you already have to increase your earnings. If you have a spare room, you can rent it short term on AirBnB, or you could be a driver in your spare time through Uber or Lyft. With the growth of online marketplaces, you can pursue side gigs by offering your skills and services as a freelancer.
Get the kids to help! While you don’t want your kids to be overburdened by debt, they should also appreciate contributing to their education. Have your child get a part-time job during the summer or one afternoon a week or on the weekends during the school year. Have them pursue something that won’t detract from their education, but which might help them learn a new skill or trade that could be useful to them in the future. Then ensure that they invest half of what they earn or, if you can, agree to match whatever they save as a means of enticing them to save more.
It’s certainly not easy paying for college, but with careful planning and savings you can make it doable and ensure that you and your children aren’t overloaded with debt.
References:
http://economix.blogs.nytimes.com/2012/03/02/why-tuition-has-skyrocketed-at-state-schools/?_r=0
http://www.finaid.org/savings/tips.phtml
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