Single parents – especially single moms who struggle to obtain adequate child support and have to live on a single income – have an uphill climb in generating enough college savings for their children.
The good news is that there are ways for single moms and dads to set aside enough money for college. It isn’t easy, but single parents can get the job done.
The stakes are high, as plenty of U.S. single moms and dads recognize the need to start saving for their kids’ college fund.
Saving for College a Top Priority
According to a recent LoveMoneyFamily study from Allianz, 45% of single parents responding to the survey state that saving for a child’s educational needs was their “primary motivation.”
Even so, the same respondents – all who earned an average annual income of $50,000 or more – said that “preparing for retirement and their child’s college expenses at the same time causes them a great deal/some stress.”
That was the case even though those same single parents told Allianz they are on a “relatively stable financial footing and exhibit strong confidence in their financial planning skills.”
Add to mix the fact that many single parents are also the primary financial decision-makers in the family and the pressure grows to create and sustain a solid college savings plan.
Tips on Saving and Paying for College
The good news? Single parents can save and pay for college using the same tools available to two-parent households – with a 529 college savings plan, scholarships, the American Opportunity Tax Credit, the FAFSA and student loans.
That’s all advisable, but single parents with little or no financial backup should also avail themselves of savings tips and tools that are unique to the single parent.
These strategies should be at the top of that list.
Cut expenses. Track your spending. Increasing awareness of your spending will help you identify ways to save by cutting costs. This is especially important if you don’t have a spouse who can nag you about your spending habits.
For example, you can save on childcare costs by asking friends and family to babysit. If you have multiple children, use the same childcare facility to get sibling discounts. Look for low-cost childcare options.
Other common budget items that present an opportunity for savings include eating out, beverages, snacks, TV, telephone, diapers, gym, bank fees, clothing (thrift stores and consignment shops are cheaper than department stores), vacations and insurance (increase the deductible). These may be small individually, but they add up. Visit the grocery store only once a week and department stores only once a quarter, after creating a shopping list. Freeze leftovers. Use a no-spend month to clean out your pantry and accelerate college savings. Also, learn to say “no” to your children.
Save child support and alimony money, if possible, if you can afford to pay for living expenses on your income.
See a financial adviser who specializes in helping single parents. Start by talking to a financial planner who knows the ropes of single parenting life, preferably a fee-only financial planner. A good financial planner can act as a financial sounding board during your savings years and help you choose a college savings plan. Ask around among other single friends for a referral – chances are they’ll be happy to help.
The adviser you select can also talk you out of bad ideas like borrowing from your 401(k) plan to pay for college or not regularly funding your 529 plan.
Better yet, you’ll also get some good guidance on other areas of your financial life, like retirement planning and taxes, that need to be addressed as well. Expect to pay around 1% of your entire portfolio assets when working with a good financial adviser.
Take full advantage of single-parent tax breaks. There are several single parent-friendly tax breaks.
The Child Tax Credit provides a tax break of $2,000 per child under age 17 each year. Most single parents can satisfy the rather generous income eligibility requirements, which start phasing out at an annual income of $200,000 for non-married taxpayers.
The Child and Dependent Care Tax Credit provides up to an additional $3,000 tax credit for one child and up to $6,000 for two or more children.
Select single parents may also be eligible for Earned Income Tax Credit, which rewards lower-to-middle income earners with children. In 2019, the EITC maxes out at $6,557, and the credit can vary significantly depending on your income level, tax filing status, and number of children claimed.
Get automatic savings. Yes, money is usually tight in single-parent homes, but that’s exactly why you need to chisel off $100 or $200 every month via automatic savings deposits.
If you can steer $150 or so each month directly from your bank checking account every month, in five years you’ll have $9,000 saved up for college ($150 x 60 = $9,000.00). You can set up an automatic investment with most 529 college savings plans with contributions as low as $15 or $25 a month. Automatic payroll deduction may also be an option.
If you don’t want to use a 529 plan, aim to put the extra cash into a high-yield savings account, which offers better interest rates than traditional savings accounts.
Ask friends and family to give the gift of college. Ask them to contribute to your children’s 529 college savings plans instead of giving the usual tangible gifts for birthdays, holidays and other celebrations. Giving the gift of college is more meaningful and will help your children be successful.
Focus on FAFSA. The Free Application for Federal Student Aid can be leveraged in favor of single parents – if you play it right.
The key is lowering your Expected Family Contribution (EFC), which is included in your financial award letter, and is based on your annual income, assets and family size. The lower your EFC, the more you, as a single parent, are eligible to get in government and college grants, student employment and student loans. Get to a zero EFC on your FAFSA and you’ll stand eligible to get the most amount of financial aid eligible, including the maximum Federal Pell Grant.
Your financial need is defined as the difference between total college costs and the EFC. For example, if your daughter’s total tuition, room and board stands at $25,000 and your EFC is $2,000, your financial need is $23,000.
If you, like most single parents, are operating under a single household annual income, chances are good you can get that EFC number down, and open the door for more college financial aid.
Beware of parent loans, such as the Federal Parent PLUS loan and private parent loans, as that’s usually a sign that you’re spending too much on the child’s college education. If you can’t save enough for the child’s college education, they may need to enroll at a less expensive college, such as an in-state public college or a community college.
Aim for scholarships and grants geared toward single moms and dads. Getting financial help for college gets somewhat easier with the availability of scholarships and grants uniquely available to single parents.
For example, Federal Pell Grants are available to low-income families with household members who attend college.
The maximum Federal Pell Grant is a bit over $6,000 per year. 94% of Pell Grants are awarded to recipients with an annual household income of $60,000 or less – and it doesn’t need to be paid back.
You Can’t Get Traction Until You Start Moving
Nobody says it’s easy saving and paying for college as a single parent.
But if you’re diligent and you get creative with some of the college savings tools that favor single parents, you can actually save more money for school than you likely ever imagined.
In the process, you’ll fulfill that promise to get your son or daughter (or both) into college with as much financial help from you as possible.