With President Biden’s controversial student loan forgiveness plan making headlines, the onus and challenge of saving for college is probably at the top of mind for many parents.
Many parents are still paying off their own student debt while worrying about their kids’ college education. No one can deny the stresses of these topics. In fact, nine out of 10 borrowers say they’ve experienced significant anxiety due to their loan burden. Planning for their own children’s education may seem impossible, but the good news is there are small steps parents and kids can take now to begin building their college funds.
We spoke with Jennifer Seitz, a certified financial education instructor and director of education at the family finance company, Greenlight, who shared some great tips for families on how to better plan financially for college.
Saving For College: A Q&A
Is it ever too late—or even too early—to start saving for your child’s education?
It’s never too early for parents to start saving for their children’s future education. But it’s not too late if they are already teenagers, with college just years away. In a recent Greenlight survey, we found that 70% of parents are anxious about saving for their children’s college education, which is ranked as the #1 savings goal for their kids. Here are tips parents can keep in mind for starting to build a college fund for their children:
- A 529 savings plan is one of the most common plans. Parents can use this plan to invest in different assets, such as stocks, bonds and mutual funds. They can use the money for qualified educational expenses. There are many advantages to opening a 529 plan for your child, including tax breaks and accessibility. However, 529 plans may be limiting if your teen decides college isn’t for them.
- Another option is to open a custodial account for your child. Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) are accounts managed by parents until the child reaches adulthood. With UTMA and UGMA accounts, parents can contribute after-tax money to their child’s account up to $16,000 annually without incurring a gift tax. For married couples, the limitation doubles to $32,000 annually. These accounts are less limiting than a 529 plan. But, it’s important to note that they may affect your child’s financial aid eligibility when applying for aid through FAFSA.
With President Biden’s student loan forgiveness plan topping headlines lately, is there any way to use the news as a learning moment about saving for college?
President Biden’s recent announcement about student loan forgiveness is an opportunity to sit down with your high-school aged children and discuss student loans in more depth. Such as, the actual cost of borrowing, debt repayment, credit reports, and the importance of credit scores. Regardless of age, kids are more likely to have positive financial outcomes in their early adulthood if they experienced regular financial conversations at home.
What can parents do to help and encourage their kids to start saving money for their future?
Invest together with your teens. Give your teens a stake in their future by working together on a plan for their education. They can start their own investment account and set money aside from their allowance, part-time job or monetary gifts from family. Greenlight’s investing platform enables kids and teens to use their app to research, explore and learn about the world of investing with expert analysis powered by Morningstar. With the money they have allocated to invest, they can propose trades, which goes to a parent for approval. With fractional shares, investments can be made for as little as $1. Over $20 million has been invested on Greenlight so far. It’s a standard brokerage account held in the primary parents’ name, which allows families to invest together with no limitations or restrictions on how or when you can use your investment.
Setting aside additional money isn’t the only way to save. You can also save by reducing costs. Your college savings will go further when offset by a combination of grants, scholarships and work-study programs that you can thoroughly research together. The benefits of higher education generally outweigh the costs, and it’s important to carefully weigh options when choosing schools.
Is there anything else that is particularly important when it comes to saving for college?
With older children and teens, talk about your family’s college plan. Parents can give their kids a financial stake in their education by helping them identify a certain part of expenses they can work toward now. Set an achievable amount they can save until college, such as with a summer or part-time job. The benefits of work include a sense of financial independence by earning their own paycheck along with more opportunity to practice how to budget and save. They’ll learn valuable life skills along with those essential money skills they’ll need in the future!
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