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When it comes to planning for college, most parents are sure of just two things: They want their child to get a college degree, and they’ll need a smart savings plan in place to ensure college expenses are covered.
For the 2009-2010 academic year, tuition, room and board at a private four-year college topped $ 32,000 per year, according to the National Center for Education Statistics. In 1980, that figure was just $ 5,594 per year. And even though college expenses were significantly lower for previous generations, many report they are still burdened by lingering debt. In fact, a recent survey, released by TD Ameritrade Holding Corporation, found that among the parents of Generation Z (who range from ages 13 to 22), 58 percent say they took out student loans to fund their own college education, and, of those, 43 percent report they are still repaying those loans.
Considering their parents’ struggles with college debt, it comes as no surprise that Gen Z is eager to ensure they graduate with as little debt as possible. Among this group of young adults, 39 percent cited that paying for college was a top concern, while another 39 percent said they were also concerned about having a large student loan balance.
“Increased tuition costs and a bleak job outlook may be cause for concern for today’s young adults and their parents, but being proactive and coming up with a savings strategy early can help ease these financial anxieties and better prepare them for the future,” says Carrie Braxdale, managing director of investor services for TD Ameritrade, Inc., a broker-dealer subsidiary of TD Ameritrade Holding Corporation.
Braxdale recommends parents and young adults work together to start planning and saving for higher education as soon as possible.
“It’s never too early – or too late,” says Braxdale. “For example, a 529 college savings plan can be opened as soon as a child has a Social Security number, and contributions to that fund can be made every year until the child goes to college.”
The following tips are for families gearing up for college:
1. Calculate the costs
While a quick online search can give families an idea of college expenses, predicting future costs can be a bit more challenging. There are a number of free online resources available that can help parents and teens estimate how much they’ll need to save for college so they can get a solid plan in place.
2. Explore your savings options
Parents and teens should work together to research college savings options like 529 college savings plans, Coverdell Education Savings Accounts and custodial accounts. Once they decide on a plan that will work for them, the saving can begin.
3. Turn talk into action
Once a college savings plan is established, parents and teens should follow through on their planning and make a conscious effort to save. In many cases, regular contributions to savings plans can be made automatically, making the process easier to manage. Once saving has begun, you will have taken steps to pursue your higher education goals.