During difficult economic times, colleges and technical schools find their enrollment increasing drastically. When jobs are short, many people return to school to finish what they started long ago, or to gain new skills and degrees to further their careers when the market improves.
Here’s the tricky part – most of those attending college can’t pay for it. So, they apply for grants, take out loans, and graduate with increased debt. That’s not to say the debt may not be worth it, since many professions require a college degree, and people with a college degree earn more over their lifetime, but there are ways to reduce the amount of debt accrued while seeking that education.
Let’s start with the basic 529 college savings plan. These plans are offered by states or educational institutions to help families set aside funds for future education costs. Most often we think of setting up these funds to help our children with their future educations, but they can also be used to help you plan for your own education. When setting up a 529 account, you name the beneficiary. If you think you may go back to school for an advanced degree, or want to go for the first time, you can save funds for yourself and enjoy the same tax benefits as if you were saving for your child. And if you decide not to go to school yourself? You can always transfer the account to another qualified relative.
What about saving for retirement? Is it better to save for college? Most experts advise saving for retirement above saving for college. After all, there are grants and scholarships available for college education, but not for being old and unprepared. But that doesn’t mean you can’t save for both. IRAs can even be drawn on for college costs, without the early distribution penalties.
Many people get hung up on the numbers. The website savingforcollege.com has tools and calculators to help you figure out what you will need to save for future education costs. These numbers can be daunting, advising monthly contributions of $645 per month to pay 100% of costs for a child who is two right now. For most of us, that number hurts. Don’t worry about saving 100% of the cost by the time the child turns 18. Any amount saved now will help alleviate the cost later. Aim for saving one third to one half of your child’s expected costs. The rest you can make up when your child attends school with the help of grants, loans and your child’s own contribution.
Robert Weinberg is one of the nation’s leading experts on debt elimination and credit management. Robert can be reached at 888-456-5635 or by email at RW@YourDebtResource.com. Be sure to check out Robert’s blog at YourDebtResource.com. Don’t forget to sign up for our weekly Debt & Credit Strategies newsletter. Looking for help with your current debt situation? You are encouraged to take part in our Free Debt Analysis