College students who headed back to campus this year say costs had a huge influence on where they ended up going to college.
"It gave me the most scholarships and financial aid," said University of Kentucky freshman Alaysia Bumpers, "So that's what brought me here."
A college education may be one of the biggest purchases you make in your lifetime — for either yourself or for a child. But the tough reality is that college costs are expected to grow about 4% every year, according to the Education Data Initiative.
This National College Savings Month, which takes place in September each year, financial experts are spreading the word that it's never too early to save for education after high school.
"It's key to start saving early and often," said Maria Bruno, a senior financial planning strategist with Vanguard, "So if you can set something up like an automatic investment program where the monies are going in automatically, perhaps per paycheck, get directly invested into something like a college savings plan."
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The Education Data Initiative found the average price of a bachelor's degree culminating in the 2022-2023 academic year was $89,556, including the cost of tuition, fees, and room and board.
In a Vanguard survey, just 16% of parents said they are certain they will meet their college savings goals, while 34% said they are behind schedule.
Bruno said 529 plans, available in all states, are the best vehicle for education planning.
She said you won't pay taxes on money withdrawn from a 529, as long as it's used for educational-related costs. Also, the funds are no longer earmarked for college alone.
"Trade schools, vocational schools, and expenses, even things like computers," Bruno said. "There's a lot of flexibility in terms of how those dollars can be used."
Vanguard found just 3 in 10 parents with high schoolers or college-aged children have used or are using a 529.
"This is really critical in getting that message out for young families just starting to have children, to set up those college savings accounts as soon as possible," Bruno said.
Alternatives to a 529 plan include:
- UGMA accounts, under the Uniform Gifts to Minors Act.
- Traditional savings accounts.
- Individual retirement accounts (IRAs).
- Prepaid tuition plans, offered by some state universities.
"By and large, 529 college savings programs are the lead vehicle," Bruno said.
A good rule of thumb, according to Vanguard, is earmarking about 3% of your income every year toward a college savings program. Another idea to help with college savings is asking friends and family to gift contributions to a child's college savings plan for birthdays and holidays, rather than giving traditional gifts.
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