Anyone interested in getting a higher education must save in advance to help pay for tuition and living expenses. These days, borrowing alone is simply not a workable plan and leaves many graduates in an impossible debt situation.
College students have faced a growing crisis over the past few decades. College costs have been exploding, growing over 1,100% since 1978. In the past few years, tuition costs have grown faster than any other rising consumer costs—according to the Labor Department, the price of medical care grew 43% in the decade 2003-2013, and college tuition costs grew 79.5%.
Because of these steeply rising costs, too many students turned to student loan debt to pay for college. Now, we are seeing graduates with tens of thousands of dollars in debt, and a very competitive job field. Making large student loan payments is hard enough even with a good job—those without ready employment are stuck holding the bill for a very expensive degree that doesn’t seem to be helping them establish a viable career.
Saving for college can take different forms for different borrowers, but some principles are universal:
Save early and often
The sooner one starts saving, the more opportunity the funds have to compound. If you have kids and you think they’ll go to college someday, start a college fund now, no matter how young they are.
Work before college
It’s a huge benefit to incoming college students if they have already had some kind of job. Even low-paying summer jobs during high school teach students the value of hard work, give them some extra income to save toward tuition, and make them less likely to spend wastefully when they get away from home.
Use the right vehicle
There are plenty of good ways to save money for school, but the best savings vehicle is a 529 plan. Anyone in the family can contribute to the 529 plan, including grandparents, aunts & uncles, etc. To get started with a 529 plan, talk to your local bank or credit union.
Don’t compromise your future
Don’t withdraw funds from your own 401(k) or other retirement funds for your own or your kids’ college education. The tax penalties make this a bad trade, and you’re sacrificing your shot at a comfortable retirement for an education that may not guarantee future success.
Start saving now, worry about the details later
There are some tax implications when you draw down from your 529 plan, but you needn’t worry about them until it’s time to start paying for college. For now, start saving any amount you can to give your funds a chance to grow tax-free.