As a parent, you know that time with your kids can go by in the blink of an eye. So, whether you are preparing to send your child to kindergarten or are dealing with teenagers, it’s never too early (or too late) to start planning for their higher education. Not sure where to start? We’ve gathered some parents’ most common financial mistakes regarding college planning.
Mistake #1: Procrastinating
Raising children is no easy task. You have so much to think about as they’re growing up that college might not always be at the forefront of your mind. But the reality is that the earlier you get started on planning how to fund your child’s education, the better off you will be. With the impact of compounding interest, even just a couple of years can make a difference in your savings. Take the first step by calculating the potential future costs and consider how many years you have left to save. This way, you’ll have a specific number when putting money aside each month.
Mistake #2: Not Researching Account Types
While it’s good to have options when it comes to saving for your child’s education, choosing the right savings account can be overwhelming. Take the time to research the types of accounts used to cover educational expenses.
Options could include:
- 529 plans
- Coverdell ESAs
- Roth IRAs
Consider how they differ and what aspects are most valuable to you. You’ll also want to consider factors such as your risk tolerance and how much time you have left to save.
Mistake #3: Buying Investments with High Annual Fees
You probably don’t want to think about additional fees when trying to save for a huge expense, such as college. However, excessive fees can make reaching your college planning goals much more difficult. Review any potential fees that could negate or diminish earnings when choosing an investment vehicle or savings account for college planning.
Mistake #4: Relying on Your Retirement Funds to Pay for College
Depleting your retirement savings to send your child to school is a common mistake that parents make. It’s important to think ahead because restarting your retirement savings in your 40s and 50s is going to make it difficult to retire when you want to. Instead of turning to your 401(k) or retirement savings, look into student loans, scholarships, 529 plans, and other college savings accounts.
Mistake #5: Failing to Consider Student Loans
Taking out student loans does not mean that you don’t make enough money. College is becoming increasingly expensive every year, and there’s no shame in taking out a loan for a little help. In fact, there are about 43.4 million borrowers with federal student loan debt.1 Research different federal student loan programs and understand the difference between subsidized and unsubsidized loans to determine if taking out a loan would work for your situation.
Even if you don’t plan on borrowing money, fill out the FAFSA before sending your child to school. It’s a quick and easy way to potentially receive aid, and you don’t have to take it, even if it’s offered. Additionally, research loan types, such as federal loans, may offer lower interest rates than private lenders, but this may not always be the case.
Are you still stressed by the thought of starting your college planning journey? Use these tips as a jumping-off point as you work with your financial advisor to develop a college savings strategy for your future graduate.
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Storybook Financial is a financial planning firm determined to help those that believe in the betterment of the world around them. As a fiduciary, our service promotes unbiased financial planning with an emphasis on young medical professionals and their families. We are constantly pushing for new ways to give back to the Cystic Fibrosis community. We are based out of Iowa City | Coralville Iowa, but we serve clients nationwide with our robust virtual presence. This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.