As a parent, you may not have taken a traditional path to education. You may have chosen to go back and get a new degree later in life, or you might not have started school until after your children were born. In some cases, you may simply still be paying off your student loans as your children prepare for college. You want to help your child pay for their education, but at the same time, you need to get your own student loans paid off. How can you both pay off your own student loans and pay for your child’s education? Can you offer them help without shooting yourself in the foot, financially speaking? Whether your child is just starting their educational journey or you want to help them finish those last, critical years, try some of these strategies.
Start Saving for Your Child’s Education Early
If you’re still in school yourself with little ones at home, putting away money for your child’s education may seem daunting–if not downright impossible. With little extra room in a parent’s budget, how are you supposed to offer that level of help to your child? The earlier you start saving for your child’s education, however, the more you’ll be able to help your child–and the more that account in which you put the savings has the potential to grow over time through interest earnings. There are several types of savings accounts that are designed specifically for your child’s education expenses.
529 plans are designed specifically for education but may have serious limitations. If, for example, your child opts not to go to college, you may not be able to withdraw funds from these accounts tax-free.
Roth IRA accounts can have contributions added pre-tax. If your child still has more than five years to go before they head off to college, you can withdraw Roth IRA funds for educational purposes–and if your child doesn’t opt to go to college, you’ll still have the funds on hand for retirement.
Prepaid college tuition plans can help you save big if you’ve got a decent idea of where your child will go to college: you pay for tuition based on the current price, and your child can use that money for a comparable period of time in school when they’re ready for college–even if tuition skyrockets between now and then. Prepaid tuition plans will also allow you to contribute pre-tax dollars.
Put Together Your Budget
If education is a priority in your life, you’ll figure out how to pay for it. Sit down and put together a budget that will allow you to increase your savings, pay off your student loans faster, and make it easier for you to help your child with their college expenses when the time comes.
Start with an understanding of what you’re really making. Consider what you’re making right now, not necessarily what you hope to be making soon/after you graduate/by the time your child starts school. While you can alter your budget as your income changes, it’s important to start with what you’re actually spending right now.
Take a look at your fixed expenses. What expenses do you have in your life that are unlikely to change? This might include, for example, housing expenses, food, and gas. Include ongoing memberships and subscriptions (your gym membership, for example) as well as other expenses that regularly recur in your life. Be sure to leave room for holiday spending, from birthdays to vacations. All of those things will need to come out of your budget, and you don’t want to subtract from your education savings!
Monitor your spending. Once you know what your expenses look like, take a look at where you’re spending your money every pay period. There may not be a way to decrease some big expenses. Others, you may be able to work with. Take a look at where your money is really going. You may quickly discover that there are several places you can cut your spending without really missing it, which will allow you to pay off your student loans faster or increase your child’s college savings.
Know what you can afford to spend. If you have a child who is ready to head off to college in the next couple of years, get a decent idea of how much help you can afford to give them. Some parents are fortunate to be able to pay for their child to go to college and support them while they’re there so that they can focus on their education without needing to work. Others, however, may need their child to get a job and help support themselves. Make sure you know what you can afford to spend–and then stick to it.
Create a plan. When you cut down expenses, find places to save money, or simply direct your savings toward an educational savings plan or toward student loans. You need a plan to ensure that the money goes where you want it to go. Develop a plan to help build that savings account–and encourage your child to contribute! They might, for example, pick up a summer job to help put money toward their college education, or they might be able to pick up odd jobs throughout the school year. Even a child in school full-time may be able to work a few hours to help pay for their gas or other expenses. When you design a plan together, you’ll know that you have a solution that both of you can live with. Even if your child is still too young to contribute to their educational savings, create a plan that will help you better save for their future.
Pay Off Your Loans (Without Using All of Your Extra Income)
You want to have your loans paid off, but there are also other things in your life that are important–especially if you have kids that you want to make memories with. How do you pay off your loans without using all of your extra income or feeling as though you’re never going to be able to call your money your own?
Go above the minimum payment every month. Each month, commit to paying off just a little bit of the principal on your student loan. Every month that you pay extra, you’ll decrease your interest over time and get your loans paid off faster.
Set a goal. When do you really want to see your student loans paid off? How long do you have to get there? Set a solid goal, then work backward to figure out what it will take to get there.
Leave room in your budget for fun. This will make you less likely to “cheat” and end up right back where you started: struggling with student loan debt and unable to pay for your child’s college.
Decide what you’re really willing to give up. Many savings programs suggest giving up your morning coffee run or turning off cable. While those are great strategies, don’t give up something that you’re not willing to let go of! Instead, consider what small things you can sacrifice that, in the long run, you won’t really miss anyway.
College Savings Tips
As you’re saving for your child’s college, there are several things you can do to make the process easier–and therefore less painful once they start college. Try some of these tips.
- Put back money given to your child on birthdays and holidays, especially when they’re young. As they get older, require them to put a set percentage of gift money toward their future education.
- Encourage children in high school to pick up summer jobs or after school jobs. Require them to put a percentage of their income into their college funds.
- Put money aside yourself, even if it’s in small amounts. Don’t spend change, or choose to use every five dollar bill as a college savings tool. You’ll be surprised by how much that money adds up over the years!
- Don’t assume that you have to pay for it all yourself. While you want to help your child, they’ll be more likely to appreciate their education if they have to help pay those expenses.
Helping your child pay for college is an admirable goal, but it can be daunting. At Lendkey, we can help you access the vital information you need to help give your child a better start. Whether you’re looking for more information about student loans or valuable advice about how to shape your college savings, contact us today to learn how we can help.