4 Ways Families Are Tackling High College Costs

http://www.savingforcollege.com/articles/4-ways-families-are-tackling-high-college-costs-657

Part of our mission at Savingforcollege.com is to help raise awareness of the rising costs of higher education and the importance of starting to save early. According to Sallie Mae’s annual How America Pays for College study that was released last week, families are getting the message. The study revealed that most Americans (89%) believe that college is an investment in a child’s future, and while 80 percent of families are willing to stretch themselves financially to save for college, many are also finding clever ways to keep costs down. In fact, this year’s survey revealed that out of pocket spending to pay for college increased to 42 percent, which breaks a three year trend of increasing out of pocket spending. How are they doing it? Here are four top trends in tackling out of control costs:

How Much Will College Cost? [CALCULATOR]

1. Choosing a Budget-Friendly School

Typically, when a student wants to pursue a degree after high school they have a variety of options. While a traditional four-year university can sound appealing, you have to consider whether it’s really worth it if you haven’t saved enough to cover the costs. The College Board recently reported that for the 2013-2014 school year the average tuition and fees for a private four-year college was $30,094, and $8.893 for an in-state public school. Even if you saved enough to cover $5,000 per year of the costs and borrowed the rest, after four years you would end up paying back $146,141 in loans for private school and $22,672 for public school (assuming a loan interest rate of 8% and a 10 year repayment plan).

Recognizing the impact this type of debt can have on a young adult, more and more families are choosing to start out at a two-year public college. In fact, according to “How America Pays for College”, 34 percent of students enrolled in two-year colleges last year, which was the highest number since the survey began. Most (75 percent) of these students plan on continuing on to pursue a bachelor’s degree, yet some may do just fine stopping after two years. The Wall Street Journal recently reported that recent graduates with associate degrees in technical-related fields often earn salaries that outpace those with four-year degrees from traditional colleges.

Why Bother Saving for College?

2. Bunking with Mom and Dad

If a student wants to live on campus, they can usually add around $10,000 to the annual costs listed above. Instead of taking on more student loan debt, 61 percent of the families surveyed by Sallie Mae chose to live closer to home and commute to school. Saving just one year’s room and board cost would be enough to cover a whole year of tuition at a pubic four-year college! Students who cringe at the idea of living with their parents temporarily after high school should consider the fact that it’s probably better to do it now rather than later. One in five young adults today are still residing with mom and dad after college, and having too much debt is one of the main culprits. Although student loans are not considered “bad” debt by banks, high monthly repayments can prevent you from getting a mortgage loan and make it difficult to save for a down payment.

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3. Desperately Seeking Scholarships

When asked how they paid for college, families reported covering 31 percent of the costs with grants and scholarships. Students can start building a scholarship resume as early as elementary school by getting involved in sports or other extracurricular and community activities. The first scholarship applications should ideally be sent out during the middle of junior year of high school, and students should continue to apply for awards for each year they plan on attending college. When deciding which scholarships to apply for, no award should be considered too small. Even the little ones can add up significantly and reduce the amount you have to borrow. For those families who have been saving with a 529 college savings plan, you will be able to take distributions up to the amount of the scholarship without incurring a penalty, although the earnings portion of your account will still be subject to income tax.

Look for Scholarships Here

4. Proper Planning

Paying for college is likely going to be one of the biggest expenses a family will ever face, which is why 41 percent of families surveyed have started planning for it. You plan for emergencies, you plan for retirement – so why are 59 percent of families not planning for college? More than half (58%) claim that they don’t have enough money, and others are expecting to rely on financial aid or scholarships (22%) or simply haven’t gotten around to it (21%). According to Sallie Mae, having a plan pays off – families who plan save a whopping 83 percent more than non-planners. What’s more, last year non-planners covered 21 percent of college costs with loans, compared to only 8 percent for planners.

Families are using a variety of strategies to help plan for future college costs, including using savings and planning tools, meeting with financial advisors, conducting their own research and using 529 college savings plans. Opening a 529 account is one of the easiest and most effective ways to save money for college. With automated deposit options, families can “set it and forget it” with small monthly contributions. That money will grow federal tax-free over time and will not be taxed at withdrawal as long as it’s spent toward qualified education expenses. Some states also offer additional tax breaks for residents who invest with their own state’s plan.

Find Out More About Your State’s 529 Plan