College tuition rates have been increasing at rates that outpace inflation. Almost 20 years ago, I graduated from a small, private, liberal arts college. Back then, tuition was about $10,000 per year and room and board added another $5,000 per year. Even back then, that was more money than my parents wanted to spend, so I was thankful that I earned a full tuition scholarship. Recently, I checked tuition rates for my school, and I was shocked to see that tuition has increased to about $30,000 per year with an additional $10,000 for room and board.
While we will likely not be able to save enough money for my boys to go to my alma mater without scholarships, those numbers continue to motivate us to save money for our boys tuition. While I don’t want them to feel entitled, I do want to try to help them start out life with huge student loan debt.
Here are some of my favorite tips on how to save money for college now:
- Start early – If possible, begin saving now (if you haven’t already). You want to have as much time as possible for your earnings to grow over the years. Reinvest any earnings, and your savings will continue to compound and grow on its own. It’s best to start saving as soon as your child is born (if not before).
- Save something – Even if you don’t have much wiggle room in your budget, try to save at least something. Can you cut a few luxury items and put away $10 or $25 a month?
- Make Automatic Payments – It’s easiest to save if you don’t even have to think about it. Set up an automatic savings plan where the money is automatically pulled from your account each month. You won’t have to spend the mental energy deciding whether to invest or not, and it’s likely you won’t even miss the money.
- Don’t compromise your retirement savings with college savings – No one will give you a loan to retire, so make sure you are saving enough for retirement first before you start saving for college. College savings is important, but not more important than living after retirement.
- Put your savings in a Tax-Free Account – Your money will grow much faster if you don’t have to pay income tax on any earnings, so invest in a 529 college savings plan (or Roth IRA). If your state has a good 529 plan, you may even be able to deduct any contributions from your income for state income tax. Plus, you don’t have to pay taxes on withdrawals as long as they are used towards qualified educational expenses.
- Save college money for free with Upromise – We’ve had a Upromise account since before my oldest was even born, and we’ve been able to save over $3,000 through our account. It’s free to join, and you can earn money through cash-back shopping, cash earned with the Upromise Mastercard, and you can even enlist friends and family to link their accounts to your child and help you earn.
What about you? Have you been saving for college? Do you have any additional tips?