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Saving for College

By Ryan H. Law, M.S., CFP®, AFC®

College is expensive. FinAid (http://www.finaid.org/savings/tuition-inflation.phtml) reports that tuition rises at twice the rate of inflation, or about 8% per year.

However, getting a college education is one of the best things you can do to positively impact your earnings throughout your life. The National Center for Education Statistics (https://nces.ed.gov/fastfacts/display.asp?id=77) reports that those with a bachelor’s degree earn 57% more than those with a high school diploma, and this trend continues as more education is attained:

With this thought in mind (college is expensive but worth it) I want to explore some ways that you can save up for college – either for yourself right now or for children or others in the future.

  • Start young! If you have young children you can save up for college using a 529 plan. Each state has a 529 college savings plan and most of them offer great benefits. For example, the Missouri MOST plan (https://www.missourimost.org/content/home.html) offers tax benefits such as deferred tax on earnings, tax-free withdrawals (when used for qualified expenses) and state income tax deductions. While the specific tax benefits will be dependent on your tax situation, these are great benefits! In addition, the MOST plan has some matching funds available, anyone can contribute to children’s accounts, you are investing with great companies, and you can start with very small investment amounts. 
  • If you are still in high school (or know someone who is) make sure you focus on your grades and extra-curricular activities. While a few students will get athletic scholarships, there are many other scholarships out there for students with good grades or those in leadership positions. I received a 4-year scholarship for leadership, and much of my wife’s undergraduate degree was paid for because of her involvement in 4-H. I had friends who received great offers and scholarships because of their grades and ACT exam scores. It pays to focus!
  • During your senior year in high school and all through college apply for EVERY scholarship you are eligible for, including departmental or college scholarships, scholarships available through your work or any through your parent’s workplace. In addition, check with local service organizations. There are also some great scholarship searches out there, but I would encourage you NOT to pay for one – use free ones such as FastWeb (http://www.fastweb.com/college-scholarships) that are established and free to you.
  • Work during school. Don’t fall for the myth that you need to focus 100% on school and don’t want to work. Studies have shown (http://www.usnews.com/education/blogs/college-cash-101/2009/10/09/7-reasons-to-work-your-way-through-college) that those who work actually earn better grades. It also helps to improve your resume, especially if the work is in your field. Students who work more than 20 hours a week start to see their grades fall, however, but working is a great way to reduce costs.If you have opportunities to work at home during breaks, take advantage of it!  I remember one break where I went home and worked at a local restaurant, Frontier Pies. I would arrive at around 6 in the morning, bake pies for a few hours, be a waiter for the lunch rush, go home and rest then work the dinner shift. I earned a lot of money that week that I was able to use to help pay for school expenses.
  • Look for unique opportunities to reduce expenses such as being a Resident Assistant. I was a Resident Assistant for almost three years and saved a lot of money on rent.
  • Be sure to fill out the FAFSA each year – this form determines your eligibility for grants, loans and work-study, and many colleges use it to determine scholarships as well. Try to get it in by February 1 of each year you will attend school.
  • Be aware of how much you are paying in tuition – and if you can’t afford going to school where you are or at your dream college, consider a lower-cost school, even for a year or two. This can save you thousands of dollars a year and you can generally transfer in later on.
  • A huge expense for college students are the books – look for any opportunity you can to lower this expense. Buy used books as often as possible or check with the professor to see if a previous edition is acceptable. You can sometimes get copies of e-books for much cheaper. I bought many of my books for school on www.half.com.