Getting in the habit of saving for college is often the hardest part. Once you have a dedicated college savings account, it’ll be that much easier to start growing your savings.
Savings v. Education Loans
While education loans are frequently an option when it comes to paying the college bill, using savings is a much more cost-effective strategy. Borrowing money means spending your future income plus interest.
When you save for college instead of using loans to cover education costs, you earn interest instead of paying interest. For example, to accumulate $10,000 in 10 years at 7% interest, you’d need to save $58 per month. To borrow $10,000 over 10 years at 7% interest, you’d have to repay $116 per month.*
In this example, you actually make a cumulative investment of $6,960 and earn interest of $3,040 to reach $10,000 in savings. If you take out a loan for $10,000, you will pay an additional $3,920 in interest, for a total of $13,920. So repaying the loan instead of saving will cost an additional $6,960.
Boost Your Savings
The best way to grow your savings is to add saving for college to your regular budget, like saving for retirement or paying your household bills. Set up an account to build savings throughout the year, so you have money set aside when it comes time to contribute to the U.Plan. Set a clear goal that you can attain and use U.Plan enrollment season (every May and June) to check your progress.
Here are some other ways to boost your college savings:
- Set up regular, automatic transfers to move money into your savings account. Increase the amount every time you get a pay raise.
- If you receive a bonus, tax refund or other unscheduled income, set a portion of it aside for college.
- Get your children involved: ask them to save a certain portion of their allowance or earnings from after-school jobs.
- Ask relatives to contribute money to your child’s college savings at holidays and birthdays.
- Save and roll your change (great activity for young kids!), and deposit it at the bank.
- Consider other factors in your situation:
- Will the student be attending longer than 4 years?
Many students continue their college education through graduate school - Do you have multiple children?
