For many parents, finding a way to pay for their child’s college education is one of the biggest financial challenges they will ever face. And now your kid is filling out college applications – are you ready? Fortunately, there are a few things you can do to prepare financially for your child’s college costs. Here are four tips:
Pay down your credit cards
If you have any high-interest debt, such as credit card debt, now is the time to start paying it off. The last thing you want is to be saddled with debt while also trying to save for your child’s college education. So make a plan to pay off your credit cards as soon as possible. Here’s a good article from Symple Lending about how paying down credit card debt frees up money for big events like college or retirement.
Look at your retirement savings
You may be tempted to tap into your retirement savings to pay for your child’s college education, but resist the temptation! If you withdraw money from your retirement account before you’re supposed to, you’ll be subject to taxes and penalties. Plus, you’ll need that money later in life, so it’s best to leave it untouched if at all possible. Some retirement accounts allow parents to take out a loan to pay for their children’s education. Usually, these have to be paid back within 5 years, but it may be an option to consider.
Term life insurance
One option you may want to consider is term-life insurance. While it won’t do much good after your child has graduated from college, it can provide peace of mind knowing that your family will be taken care of financially if something happens to you while your child is still in school. If you should die, the benefit will cover the rest of your child’s tuition. Plus, term-life insurance can be surprisingly affordable—especially if you compare rates from different insurers.
Understand the US Financial Aid System
US citizens enrolled in eligible colleges, or career schools can receive federal student aid. You must fill out the Free Application for Federal Student Aid (FAFSA®) every year. From that information, your child will receive a Student Aid Report (SAR) that shows how much you are expected to contribute before financial aid is granted.
You Can Swing This
Saving for college is a major financial challenge for many American families, but now that the time is near – don’t panic. There are things you can do to make it easier. Paying down high-interest debt, looking at your retirement savings, considering term life insurance, and understanding the US financial aid system for college students are all good places to start.
