We’re excited to be another blog post; this one is around advice on saving for college. We’ve partnered with a West Coast based financial advisor to help answer some frequently asked questions on this topic.
When should I really start thinking about this topic and begin putting together a plan for helping cover my children’s tuition? How much should I be targeting saving?
You should start thinking about education funding as early in your child’s life as possible. Many parents start thinking about it when their child is born, however they fail to implement anything because of all the additional expenses that come with having children. Starting with something, however small, will make a difference over time.
Targeted savings amounts vary based a whole host of factors from the educational institution, the anticipated time in school, to the parent’s beliefs around funding, and more. Fidelity has a great online calculator that allows you to identify savings targets, and check your progress while adjusting a few key variables.
What are some ways I can build up college savings for my children especially as a single parent with only one source of income?
Automatic Savings – set it and forget it! Establish an automatic savings plan on a schedule that matches your pay periods (monthly, bi-weekly, etc.). Start with something ‘doable but meaningful’ and have it automatically deducted from your paycheck or bank account.
Cut expenses – track your spending to see any areas you could cut costs. Dining out, TV, phone, and clothing are areas to monitor for savings.
Friends/Family – ask friends and family to consider a college savings contribution on your child’s birthday or during the holidays.
Lump Sum – do you qualify for a bonus at work or do you typically get a tax refund? If so, redirect a portion of your lump sum payout towards college savings.
What is a 529 savings account? What are the advantages of opening an account like this for saving for my children’s college education?
529s are college savings accounts. These college savings accounts have tax-advantages built into them to help fund future educational expenses. You fund the account with after-tax contributions and the growth in the account is tax deferred. Withdrawals from the account are tax-free, assuming the proceeds are used for qualifying educational expenses. These tax benefits are designed to help save for college. Every state sponsors a 529 plan, and it doesn’t matter which state you choose. It is recommended that parents check their home state plan first, as additional tax benefits and creditor protections may be available.
How else can my children pay for college if I’m unable to save enough to fully pay for their tuition?
Fully funding college is a tall task for any parent. For those who are unable to pay for college from savings there are plenty of options available.
California residents: Those in the state of California can take advantage of the California College Promise Program, which was rolled out in 2017. This program is generally available to vulnerable communities such as low-income students, veterans, people of color, and first-generation students. Those that qualify receive free tuition to certain Community Colleges within the state. If you’re not in California, check with your state to see if they offer a similar program.
State and Federal grants: Sometimes referred to as need-based aid, state and federal grants may cover most of even all the cost of attendance. Completing the Free Application for Federal Student Aid (FAFSA) is the first step. The FAFSA helps identify your Expected Family Contribution (EFC). The lower the EFC, the more likely you are to receive assistance. The best part about grants is that you don’t have repay them!
Federal assistance usually comes in the form of a Pell Grant or Federal Supplemental Educational Opportunity Grant (FSEOG). The FAFSA and resulting EFC score will determine eligibility.
State grants are also available, and the US Department of Education has a wonderful state contact map that can be accessed here. Parents should contact the appropriate state agency to gather more information on programs available.
Scholarships: Despite what many people may think, scholarships are not just for valedictorians and star athletes. In fact, scholarships are also available for those:
· Who are in financial need
· Who volunteer in their community
· Who are members of underrepresented and minority communities
· Who are part of a military family
· Who have unconventional skills
Details on scholarships can be found at your prospective school, or online scholarship search tools.
Student loans: There are two basic types of student loans – federal and private.
· Federal student loans are available to most students with a high school diploma, and don’t typically require good credit or a co-signer. To apply, simply complete and submit the FAFSA form. Your college (or perspective college) will work with you to determine eligibility and how much you can borrow.
· Private student loans will require proof you can repay it, usually in the form of a good credit score. Co-signers can help qualify a student but are then responsible for loan if the student/borrower defaults. There are many types of private student loans to fit different circumstances, some examples include: students with bad credit, international students, medical school students, and students without co-signers.
Federal student loans are generally preferable due to lower interest rates, more flexible repayment options, and other features. Private student loans will often allow higher borrowing limits and can be used in combination with federal student loans.
We’d like to give a special thanks to the West Coast based financial advisor for partnering with us on answering these questions. We’ll continue to do more posts geared around answering the personal finance questions of single parents. In the meantime, if you know any single parents who have any personal finance questions or are interested in receiving personal finance coaching, please have them shoot us an email at firstname.lastname@example.org. Same goes to any financial advisors who may be interested in partnering with us.