Do you plan to help pay for your child’s college education? If so, you may find it surprising – and a bit disheartening – that between 2001-02 and 2011-12, prices for undergraduate tuition, room, and board at public institutions rose 40 percent, and prices at private nonprofit institutions rose 28 percent, after adjustment for inflation. But don’t despair. Instead, avoid these common financial mistakes so that you’re financially well prepared for your child’s post-secondary aspirations.
Here are six common pitfalls to avoid:
- Waiting to start saving for college – The best time to start saving for your child’s education is when, or even before, they’re born. Having a saving’s plan in place can help you avoid overspending on children’s toys, clothing and accessories during their early years, enabling you to tuck away more of those discretionary dollars for their future education. Even if you’re only able to save small amounts at first, something is better than nothing. Waiting until high school doesn’t give your investments the time they need to grow.
- Underestimating college expenses – Most colleges list the total cost of attendance on their websites. Best yet, most include average annual travel, out-of-pocket and other expenses – in addition to tuition, books, fees and room and board – giving you an accurate starting point. What’s more, you can use online calculators to project what these costs may be when your child graduates high school so you have a realistic savings goal in mind.
- Forgetting to define how much you’re willing to pay – Although some parents are willing to foot the entire college bill, others prefer to cover the costs of in-state tuition at a public university and let their children make up the difference if they choose a more expensive private or out-of-state option. Still others offer to cover tuition and books, but leave their children to cover room and board and other expenses. Regardless, the sooner you decide what is right for you based on your values, beliefs and financial situation, the clearer your savings goal will be and the easier it will be to plan how to reach it.
- Skipping researching and understanding college savings investment vehicles – There are a variety of attractive ways to save for your child’s college education. One example is a 529 College Plan, which is operated by a state or educational institution. It works much like a 401(K) or IRA by investing your contributions in mutual funds or similar investments. Another option is a Coverdell Education Savings Account, which is a trust or custodial account set up in the United States solely for paying qualified education expenses for its designated beneficiary. Take time to explore the array of opportunities and determine which ones are a good fit for your financial strategy.
- Dismissing the Free Application for Federal Student Aid (FAFSA) – Even if you think your child isn’t eligible for financial aid, fill out a FAFSA. It’s the only way to receive federal student loans that have guaranteed rates and flexible payback options. Plus, many states and schools award grants and scholarships based on the FAFSA, so if you don’t fill it out you are less likely to get help paying for college.
- Overlook teaching your child to become fiscally responsible – One of the greatest gifts you can give a child is the peace of mind that comes from living within their means. Take time to teach your child value of a dollar, how to earn and save money and how to budget. Clearly communicate how much of the college expenses you plan to cover and how much your child is expected to pay so that your child can make smart financial choices. Doing so will help your child avoid taking on more debt than can be paid back in a reasonable amount of time. College students who don’t learn these lessons early on may spend a long time paying for it.