Saving for college is one of the three largest financial events most people will face in their lifetime. It ranks right up there with buying a home and putting money away for retirement. Just like any long-term financial strategy, the sooner a college savings plan is implemented, the easier it is to budget for contributions, and the longer the money will have to grow. While it might be tempting to put off saving for a college education while children are so young, those years can go by pretty fast. Preparing now will help ensure a quality education without a financial burden.

There are numerous ways to acquire funds to pay for college. One is to start a savings plan that’s geared specifically toward covering educational expenses. Here are some plans to consider:

529 College Plans

These state-sponsored plans offer tax advantages similar to an IRA. While contributions are not deductible, earnings accumulate tax-free. Withdrawals are also tax-free as long as the money is used for approved education expenses. There are two types of 529 plans: prepaid tuition plans and college savings plans.

Prepaid tuition plans allow for the purchase of tuition for any state college or university at current prices. This is an ideal way to protect against huge increases by the time a child actually reaches college age. However, most plans only cover the cost of tuition so additional expenses, such as room and board, would require an alternate means of payment. 

College savings plans cover all qualified college expenses including tuition, books, and living expenses. The contributions to these plans are invested so it’s important to understand the overall strategy and level of risk involved. Again, withdrawals are tax-free when it comes time to paying qualified college costs.

While tax-free withdrawals give 529 plans a financial advantage, they aren’t ideal for every family. The eligibility for federal financial aid is greatly reduced by participation in a 529 plan.

In addition to savings plans, here are some other ways to get financial assistance for college:

Federal Student Loans

These loans enable students and parents to borrow money for college expenses through programs subsidized by the federal government. The funds are borrowed so they must be paid back with interest. The interest rates are lower than traditional loans, though, and there’s more flexibility when it comes to repayment terms.

Grants & Scholarships

This type of financial aid for college or career school never has to be repaid. Grants are typically awarded on a “need” basis while scholarships are given based on merit. Both are available through federal and state government, colleges, and private nonprofit organizations. 

Private Student Loans

Finally, after all grants, scholarships and federal loans have been exhausted, private student loans are another option to consider. Typically issued by a bank or credit union, a private loan should be the last resort as they typically have higher interest rates, more strict repayment requirements, and require a credit check.

Related Links:

https://www.sec.gov/investor/pubs/intro529.htm

www.direct.ed.gov/

https://studentloans.gov/myDirectLoan/index.action

http://www.finaid.org/loans/loancomparisonsites.phtml

http://studentaid.ed.gov/