Saving for College

Getting a college education is becoming more and more expensive. But whether you are a high school student or a parent of young children, you can ease some of the stress of saving for college with good financial planning.

  • The sooner you start saving, the better. Even modest savings can pack a punch if you give them enough time to grow. Investing just $100 a month for 18 years can yield $48,000, assuming an 8 percent average annual return.

  • Stocks may be the best option for your college savings portfolio. For those with young children, a portfolio tilted toward stocks is the best way to build enough savings in the long term, according to experts. As your child approaches college age, you can shelter your returns by switching more money into bonds and cash.

  • Consider a 529 savings plan. This education savings plan, operated by a state or educational institution, was designed to help families set aside funds for future college costs. Nearly every state now has at least one 529 plan available. Research the features and benefits of your plan and those from other states before you invest. In addition, experts say, there are tax benefits to plan participants, such as while contributions are not deductible on federal tax returns, investments grow tax-deferred, and distributions to pay for the beneficiary's college costs come out federally tax-free.

  • Don’t forget scholarships. Scholarships can make a big difference in the costs of your schooling. They may be awarded for academic or athletic ability, interest in a certain subject, or even volunteer work. Some are given based on membership in an ethnic or religious group. Companies may also give scholarships to children of employees. Another possible avenue: credit unions sometimes offer either scholarships or cash awards to students.

  • Financial Aid. Billions of dollars in aid is available through four main sources: federal government grants, state government grants, colleges and universities, and private organizations. To qualify for some of these types of aid, you or your child will need to fill out a Free Application for Federal Student Aid (FAFSA), which may be found at

  • Remember—tax breaks are almost as good as grants. For those attending college, you may be able to take two federal tax credits—the American Opportunity Tax Credit and Lifetime Learning Credit—in the years you pay tuition. Talk to your accountant on how these tax credits work and any restrictions or limitations.

If you are planning for college in a few years, are already in college, or have young children, and would like to know exactly how much you might need to save, go to our college savings calculator here

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