How to Set Up Far in Advance for College Costs

As the parent of a child still in elementary school, I often feel the worry of college costs looming in the distance. I think a lot of families feel that way. I know they do in fact, because I have spoken to many of them, parents of younger children for whom college is still far off but are already thinking about how they can meet what they feel must be the astronomical costs of college. So here are some things that families like mine can do now to start shrinking that iceberg and put themselves in a good position to manage the cost of college when their students are ready to attend.

1. Learn about college savings programs

Saving for college in any way is better than not saving for college. But there are certain programs designed to go further when saving for college. These include prepaid tuition programs, which allow you to prepay tomorrow's tuition at today's prices, and 529 plans. 529 plans are flexible, tax-advantaged investment vehicles that have become the most popular way to save for college. 529 plans work in the following way: your contributions are invested in the market and grow with the market with no taxes on the money you earn each year. When you take the funds out, as long as they are used for qualified education expenses, of which there are many, you again pay no taxes on the earnings.

2. Save

If you're overwhelmed by the choices you have in how to say for college, don't let that anxiety stop you from opening some type of account and starting to save, if you haven't already. While it is never too late to start saving (anything you save is something you won't need to borrow and pay back with interest later), it is more effective to start early, even with a very small amount. You may be able to set up automatic contributions from your checking or savings account, or directly out of your paycheck, to make saving easier, and you may also be able to have family and friends gift funds into your child's account. All of these options are available through the Massachusetts plans, the U.Fund 529 College Investing Plan and U.Plan Prepaid Tuition Program. These are all strategies that families have used in the past to great success.

3. Learn about the true cost of college

Saving the entire sticker price for college can seem an insurmountable goal. But reports on the news that speak to college prices typically focus on the highest-priced schools in the area. There are many types of colleges, each with their own costs associated with them. Also, these prices don't take into account financial aid. Most families will qualify for some level of financial aid, which means almost nobody will be expected to pay the full price of college. So that huge price of college will in all likelihood not be your saving goal. And the best news of all is that your savings will have a minimal impact on your financial aid eligibility.

4. Start applying for scholarships

It may seem strange but there are scholarships that even elementary and middle school students can receive. How do you find them? Use a free scholarship search engine like fastweb.com. Simply create a profile and have scholarship opportunities from organizations all over the country matched to you. Most scholarships are in the range of a few hundred to a few thousand dollars, so cast a wide net.

You don't have to take on the entire responsibility of figuring out how you are going to pay every dollar for college while your child is very young. In fact, you shouldn't. But taking these small steps early enough will allow you to manage the cost much easier.   

Learn more about saving for college