How to boost your college savings
(MoneyWatch) September is National College Savings Month, marking a time when families should think about starting or building on their savings plans for future college expenses.
College expenses have climbed over five to eight percent per year over the past ten years, which is faster than the rate of the growth in wages for the American worker. Another disturbing trend is that parents and their students have continued to accumulate more college debt and the ability to pay it off has become a significant problem for many people.
This means that it's more important to save and invest money and to expand your college savings at a rate that meets or exceeds the rate of inflation of college costs. Parents facing future college education expenses for their children need to plan for the effect of inflation on these costs.
But according to a national study from Sallie Mae, despite the rising cost of college, fewer families are saving for it. In the past two years, the percentage of families saving for college has dropped from 60 percent to 50 percent.
To help families start and improve on their college savings goals, Sallie Mae offered these savings tips reported to be used by their customers:
Start Early: Open and contribute to a 529 college savings plan account for each child as soon as they are born. It's important to have an account open and be contributing to it over the longest period of time to take advantage of the power of compounded earnings growth of your investments over time.
Use Rewards to Compound Savings: Enroll in and use the Upromise college savings rewards program offered by Sallie Mae to boost your college savings. When you use spending tools linked to Upromise, you get cash rewards that are deposited into your college savings accounts. One family reported enrolling in the Upromise program in 2001, and used their Upromise World MasterCard for many of their purchases. So far, they report having saved over $4,000 through Upromise.
Grandparents Gifts Help: Many grandparents struggle to find the right gift for grandchildren and often waste money of things the children don't need or want. A perfect gift to make instead would be a contribution to a 529 college savings plan. This will be more valuable in the future than toys or clothes which will eventually be outgrown and thrown away.
Put Savings on Auto-Pilot: It's a fact that saving money is easier and more effective when its automatic. Families should set up automatic deductions from their checking accounts to a specific college savings fund. Many employers now also allow automatic deductions from your paycheck into accounts that are part of a designated 529 college savings plan.
One of the more effective places to start saving and investing for future college costs is a 529 education savings plan. These plans are popular and widely used -- every state offers at least one 529 savings plan and over $150 billion is invested in over seven million accounts in these plans. They provide a simple way to save and invest and provide several benefits.
- Money invested grows tax-deferred, like an IRA.
- The account is owned by the parent so the child never has control of or access to the account.
- If the child doesn't go to college, you can roll the account over to another family member.
- Anyone can contribute.
- There are no income limitations to setting up a 529 plan account.
- Most states have no age limit for when the money has to be used.
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If the child decides not to go to college, you can roll the unused money in an account over to someone else in the family that does want to go -- including yourself.
