America's overall student loan debt has accumulated to $1.6 trillion, with out-of-state public college costing about $21,184 per year.
The hard truth is that college in America is outrageously expensive. But don't lose hope: It is possible to save a substantial amount for your child's college education, even on a shoestring budget.
Choose a high yield savings account to begin setting aside funds for your child's college education. High-yield savings accounts pay a yield (a percentage based on the invested amount) that's higher than average, which can help you reach your saving goal faster. For example, share certificates are deposit accounts that pay higher yields than traditional savings and money market accounts.
When you deposit money in a savings account or a similar account, you'll usually receive interest based on your deposited amount. For example, if you deposit $1,000 in an account that pays 1 percent annual interest, you'd get $10 in interest after a year.
The more time you give your money to build upon itself, the more it compounds. Compound interest means that you begin to earn interest on the interest you receive, which multiplies your money faster.
Consider a 529 plan
A 529 plan is a savings plan that helps families save for future higher education expenses. Nearly every state now has at least one 529 plan available. Research the features and benefits of your state's plan before you invest.
529 plans are a great way to invest in your child's future completely tax-free. Funds must be used to pay for qualified education expenses such as tuition, fees, books, supplies, computers, and more. The IRS allows tax-free withdrawals of up to $10,000 per year per beneficiary to pay for tuition expenses at private, public, and religious K-12 schools.
However, because a 529 plan grows tax-free, don't plan on deducting this account from your federal income taxes.
Choose a path
First, you need to determine how much you will need to save for your child's college education. There are several types of degrees that your child may be interested in. We recommend becoming familiar with all of these options: community college, public and private colleges, liberal art colleges, universities, and more. Consider which seems like the best fit, and then commit to saving for your child's future.
If your child is too young to choose a career path, start saving now to give your savings a head start.
Community college is a cost-effective alternative for students that may not be prepared to attend school away from home at a four-year university.
An associate's degree can be earned in two years with a straight transition into the workforce or transferred to a bachelor's degree that can be completed at a four-year university. Plus, associate's degrees are a great way to meet general education requirements at a reduced price.
If your child plans to transfer to a four-year university, work with an academic advisor to outline the best possible program for that career.
A bachelor's degree is what most people refer to as a "college degree." It's a four-year program that allows students to pursue a particular area of study. In addition, a bachelor's degree can help students land a solid entry-level position in the workforce.
A master's degree can add one to three years onto your child's college career. And, those additional years come with a steep price tag.
However, with some advanced planning, your child can choose to participate in a 4+1 program. A 4+1 program allows a student to work toward a bachelor's and master's degree simultaneously—allowing students to accomplish a dual degree in just five years.
Save along the way
Take AP classes
Advanced Placement (AP) classes allow students to earn college credits while still in high school. Every AP class taken in high school could save you hundreds of dollars if the credit equals a college course. Confirm with your child's college of choice before banking on those AP credits.
Apply for scholarships and grants
Scholarships and grants are free money for college that you don't have to worry about paying back. All it takes is a quick Google search to find scholarships and grants that your child may be eligible for— even if it is a small amount – it all adds up!
Apply for aid
Fill out the Free Application for Federal Student Aid or FAFSA. A FAFSA is a universal form that colleges use to figure out how much money they can offer students. The form covers federal grants, work-study programs, state aid, and school aid—all different bundles of free money!
The bottom line
It's never too early or too late to think about a college savings plan. Whether your child is a teenager or toddler, the best time to start a college fund is now.