A college education can open many doors, including the opportunity to elevate your socioeconomic status, increase your income, attract employers, learn, and grow. Entering college with the proper savings can help students take advantage of all those opportunities.
Receiving a college degree is a major life goal, but paying for a college education has become challenging. Taking on student debt is increasingly common. It is now the second highest consumer debt category after mortgage, and in the first quarter of 2018, outstanding student loans owned and securitized amounted to more than 1.5 billion.1
1. Gain credits while in high school
One way to save on the cost of tuition is for students to earn college credits while they are still in high school. By taking Advanced Placement (AP) classes or participating in a College-Level Examination Program (CLEP), students can get a head start on their requirements for college and potentially save thousands of dollars by reducing the number of classes needed to graduate. Not only can students save on tuition, they can also reduce their cost of living by decreasing the amount of time they live on a college campus.
2. Explore available scholarships
Researching a variety of scholarships and grants is one way to keep costs down. Guidance counselors and local news sources can be helpful resources for learning about local scholarships or college-specific merit scholarships that students may be eligible for. There are also scholarships that are awarded based on unique criteria, from community service to an intended field of study, so don't worry that attaining scholarships is only possible for star athletes and valedictorians. Students may want to consider applying to several schools to increase their chances of receiving scholarship offers and lessen the financial burden of tuition.
3. Enroll in a savings plan
Depositing your money in an appropriate savings plan can help you make the most of the cash you'll be saving for college. Conventional savings accounts, like those
OneWest Bank offers, can be a great start. Plan to consistently save a portion of any income or cash gifts you receive to start building a college savings fund that will grow over time with interest. One savings strategy to consider is called CD Laddering, which involves spreading your investment among several CDs with staggered terms. This enables your savings to grow with interest while you retain access to your money each time a CD matures.
4. Invest in a 529 college plan
You might also plan to put your savings in a 529 college plan, which allows you to invest in mutual funds or pay future tuition costs at today's prices. This long-term strategy can certainly pay off, but it's important to note that the money must be used for education costs or you will pay a penalty.
5. Start a Coverdell education savings account
Another savings account you may be interested in is a Coverdell account, which allows the money you save to be spent on expenses for elementary school through college education. Notably Coverdell accounts have an income restriction for contributors of less than $110,000 ($220,000 in the case of a joint tax return) as of 2018. Like the 529 college plan, funds must be used for qualified education expenses or you will be subject to a penalty.
6. Investigate cost-saving opportunities
The price of attending college extends beyond tuition, so it's helpful to also consider ways to save money on those additional costs. One option is to commute to a local community college to eliminate rent or fees for college housing. New textbooks are often expensive, so another opportunity to save is to rent or purchase used books. Students can also sell their books at the end of a class to recoup some of their investment. Choosing the right meal plan can also reduce extra funds that might ultimately be wasted, as most colleges have a "use it or lose it" policy. Many local businesses in college towns offer discounts for those with a student ID, so students shouldn't hesitate to look around for the best deals on clothes, food, and more.
7. Apply for financial aid or loans
The first step to receiving assistance with college costs is completing the FAFSA – the Free Application for Student Aid. After it has been processed, students will learn what federal assistance programs, grants and loans they qualify for. Some students may be eligible for federal work/study programs which offer them a paid job at the college they're attending.
Many students will need to apply for either federal or private loans, or a combination of both. Loans need to be repaid with interest, and payments typically begin just after the student graduates, so it's important to limit borrowing as much as possible to avoid any unnecessary debts, especially from private loans. Federal loans can have benefits private loans do not have, like fixed or lower interest rates and income-driven repayment plans. The federal government also offers subsidized loans like the Stafford Loan, which doesn't accrue interest while a student is in school.
Determining how to pay for a college education is a big financial responsibility. Talk with your banker at your local
OneWest Bank branch to find out how you can start saving for one of life's biggest educational opportunities.