Sallie Mae recently released their annual survey “How America Pays for College”. The survey involves both parents and students, and shows some really interesting trends. Of particular note to me is a chart that breaks down the sources of funding for all of the people surveyed. I don’t know about you, but this chart surprised me a little bit. While the top category makes sense (Grants and Scholarships), I was pretty shocked that Parent Income and Savings was number two on the list. After all, we often hear about the strain student loans are putting on our economy, but we rarely hear about the effect that parents paying for their students schooling has. The really interesting thing is that parental contributions have dropped 35% since 2010.
My Dirty Little Secret
It is time for confession. One thing I do not have in common with most of my fellow Millennials is student loans. I was successful in avoiding student loans for one simple reason: my parents paid for 100% of my tuition and books. I don’t say this to brag, in fact I usually avoid this topic altogether because it comes with a certain amount of embarrassment for me. For some reason I feel like it excludes me from understanding the true plight of my generation. At the same time, I did not ask for my education to be paid for, nor did I expect it. My parents offered, and I gratefully accepted.
You may wonder what someone who has never had a student loan may be able to discuss on a website dedicated primarily to student loans. I wondered the same thing until I got to thinking about how my parents paid for my education, and how I would like to do the same for my daughter. Today I would like to discuss two things. First, how can a parent who wishes to pay for some (or all) of their child’s education do so? Second, how can a child lessen the burden on said parent (or in other terms, how can you decrease your college expenses).
Start Saving Today
How often do we think to ourselves “I want to do X”, but never do it? Have you thought that it would be nice to help your children pay for college, but never taken any steps to make that happen? The first step is often the hardest. It is easy to say that you would like to help your children pay for college when it is some obscure time in the future. As soon as you put a date and a dollar amount on it, it becomes real. And when it becomes real, it becomes scary. The reality is that assisting your children’s education is doable, you just need to make it a priority. Decide today that you are going to make a plan, then actually follow through with your plan. The best part is that your plan doesn’t have to be perfect right away. There is plenty of time to revise it as time goes on. Just start a plan, any plan, today.
Automate for Increased Success
Once you have a plan that you are acting on, it is time to make sure you will keep acting on it. Automating your plan will increase the likelihood of success tenfold. Maybe you will save $100 per month towards education, maybe it is $500 a month. Whatever the number, do yourself a favor and set up an automatic bank transfer. If you don’t have to manually transfer the money each month, it is far more likely that the transfer will actually happen.
One method that I am a fan of is auto-deduction from your paycheck. Many companies allow the direct deposit of your paycheck to be split into many different accounts. If this is an option for you, and you are serious about saving for college, this is my preferred method. If the money comes out of your check before it even hits your account, chances are high that you will never miss that money. Like any type of saving, two elements are required for successful education savings: time and consistency. Automation will definitely take care of consistency.
In my opinion, the smartest way to save for education is by utilizing a 529 plan. Most states have their own 529 plans, so the benefits are difficult to explain. Suffice it to say that a 529 plan is a tax-advantaged savings account where the money can only be used for tuition, fees, books, and supplies. Think of a 529 plan as a 401k for college. The icing on the cake is that most 529 plans utilize mutual funds, which give you the ability to take advantage of the power of compounding interest.
Choose an Inexpensive School
Half of the student loan battle can be won with this simple statement: choose an inexpensive school. I believe that the college you attend matters very little. Should you focus on attending a school that offers a quality education? Absolutely. Do only private, out-of-state, or expensive schools offer a quality education? Absolutely not.
Let me let you in on another dirty little secret about me: I attended a very average school. It’s true, there is nothing special about the college I attended. My school is nationally ranked in exactly zero areas. Guess what? I still landed a great job during my last semester of college. My parents may have paid for my education, but at least they didn’t have to pay $22,000 per year in tuition.
Work Your Way Through School
Every time I encountered a “full-time student” at school I was a bit confused. For the life of me, I can’t understand why someone would not work while in school (speaking mostly about undergrad students). There wasn’t a single semester during college that I didn’t have a 40-hour per week job. Not only did I survive, it actually prepared me for life after college. One of the reasons I was able to obtain a job so quickly after school was because I already had a resume to go along with my degree.
If your parents want to help you pay for school, help them by working while attending classes. Even earning a small income will go a long way towards easing the burden on your parents, and lessening your dependency on student loans.
I want my daughter to be able to attend college without the burden of student loans. Through careful planning on my part, and certain actions on her part, I believe this is an achievable goal. If you want this for your child, it can be done. Make a plan and stick to it. Let your children know that they must do their part as well. A college education can be a wonderful thing. Let’s make sure it does not become a burden in our children’s lives.
About the Author
Nick writes a blog called A Young Pro, where he talks about Careers, Personal Finance, and Lifestyle from a Millennial perspective. He is a recent college graduate, a happy husband, and a proud father.