How do I save for college?

How many of you left college with more than a diploma? Some great memories, good friends, and pile of student loan debt. There is $1.5 trillion dollars in student loan debt in America. That is trillion with a T! The average student loan debt is just over $31,000 with a monthly payment of $393 (according to credit.com). We are creating an environment for our children where they start their lives in the hole.

One of the reasons of getting out of debt and creating a financial plan is to create a better life for your children. What if your children were able to obtain a four year degree without incurring any student loan debt? This gives them options when they exit school. They can work for a ministry at a lesser rate of pay, travel the world with more ease or purchase a home earlier in their lives. If you are out of debt and are in the position to start saving for college, you may ask what is the best way to save for college?

There are two tax-free savings plans available to save for higher education: Educational Savings Account (ESA) and a 529s. All of the growth is tax-free as long as the withdrawals are used for higher educational purposes. An ESA has a maximum contribution limit of $2,000 a year and if you make more that $220,000 (filing jointly), you are limited on your contributions. ESAs generally have more mutual fund options to choose from. 529s do not have a maximum contribution limit. Several of the 529s are limited in the choices of mutual funds or are pre-paid college choices. You will want to stay away from those 529s. Be sure to speak to an investment professional to chose a 529 that you have control over the investments.

These accounts bring up a few question:

Q: What if my child gets a scholarship?

A: You can withdrawal the amount of the scholarship without penalty.

Q: What if my child does not attend college?

A: You can transfer the account to another qualified family member.

Q: How much should I contribute?

A: This is really dependent on the age of your child and your financial situation. This is where a financial coach and investment professional can help to create a plan.

College choice is going to be one of the biggest factors of your child going to school debt free. Don’t let a 17 or 18 year-old make a choice on a school that will sink them in student loan debt later in life. Be their guide and help them make a good choice for their future. Check out Anthony O’Neil’s scholarship search to find scholarship to assist with the cost of college.

If you need assistance creating a plan for your college savings, schedule a free 15-minute consultation.