Trying to figure out how to pay for college is enough to stress out almost any parent with young kids. The good news is that if you take advantage of tax breaks, start saving early, and get creative with college credits, you can have plenty of money for your children to take advantage of a higher education, and gain a degree that ideally helps to prepare them for the workforce.
One of the easiest ways to save for your child’s college education is by investing in a 529 plan. These plans allow you to put away money tax free for any qualified educational expense such as tuition, fees, books and room and board. The funds deposited in a 529 plan also grow tax deferred as well, and you’d pay no taxes on the distribution for education purposes. If you child decides not to pursue a higher education, the money can still be withdrawn or transferred to that family member. Under a transfer, no taxes will be withdrawn. However, if you take the money out yourself, it will be subject not only to income tax but a 10% penalty tax on earnings. With a 529 plan, you are allowed to deposit up to $12,000 per year, or $24,000 if your spouse also contributes. Any amounts above that and you will be faced with paying a federal gift tax. You can even make a one time contribution of $60,000 and average it over five years.
Another great way to save money on college is by earning college credit before stepping foot on campus. This can actually be done either online or by taking actual classes either at a four year university or community college. Just be sure that any classes you sign up for will be allowed to transfer to your school of choice. Many times, taking classes at a smaller college or online is much cheaper than taking the same class at a university. By getting the basic requirements out of the way, you can save thousands of dollars in the long run and graduate earlier.
If you don’t want to enroll in a college course, you can still earn college credits while taking high school courses. Advance Placement, or AP, tests can give earn you credit if you score high enough on the end of the year tests. AP courses are available in a wide variety of subjects including English, calculus, biology, history and many more. These classes are generally taken during a student’s senior year of high school. At the end of the semester, a test is given covering the material and if the student scores a three or higher out of five, then college credit is earned in the same subject. This, too, can save thousand on fees and expenses by getting certain classes out of the way early. Some states even have programs that allow high school students to take college classes full time.
Students can also save some big bucks by getting creative on where they live while attending school. Studies show that students can save up to $10,000 annually just by living with a relative or at home while taking classes. Even if you put off attending a four year college by taking classes for two years at a community college first, you can also save big bucks. If you decide to go this route, on average, you can save $23,000 on your final tuition bill.
Finally make sure to apply for all the available scholarships and grants. They take more time and research, and you often have to jump through a lot of hoops to meet various criteria, but the reward is well justified.
Andrew Wang’s blogs include Personal Finace.