Parents, their college-age students, and even universities themselves have all had to adjust to new ways of thinking about the value of higher education, value, and how to fund it. If you are one of the 11.1 million people in the United States currently unemployed*, saving with so many unknowns might be difficult and strange. If you were already paying tuition—and didn’t get much of a refund when universities across the country went remote—it’s hard not to wonder if higher education is worth the price tag.
Looking into more affordable options such as state or community colleges, forgoing a dorm room in favor of bunking at home, or even taking a gap year are effective ways to taper the tuition bill, but don’t hit pause on your college savings plan. There are ways to re-examine your saving strategies to weather uncertainty. According to a survey conducted by CollegeSavings.com, despite 22 percent of respondents experiencing a job loss or a reduction of income, 67 percent of college savers have made no changes to their contributions, and 15 percent have even increased the amount they are contributing.
Here are six ways to stay on track when it comes to saving for college.
1. Open a 529 account—if you don’t already have one. Not only do these education accounts offer tax benefits, they grow tax free, and you won’t be taxed when you withdraw the money for qualified educational expenses—but you’ll reap the most advantages the earlier you start investing. Compound interest is a beautiful thing.
2. Consider reducing or pausing your contributions instead of withdrawing money if you’re in a bind. If you cannot contribute to your kids’ college accounts, or if you’ve had to decrease the amount you contribute monthly, for the time being, don’t worry too much. But try not to take money out of the account if you can help it. Again, the longer the money stays in there, the more interest it will earn tax free. Plus, if you withdraw the money for non-qualified expenses, you’ll incur a 10 percent penalty.
3. Invest monetary gifts into an education account. Every time a birthday or holiday rolls around, chances are family members will ask you what they can get your kids. Instead of toys, ask them to send money. You can deposit monetary gifts into an education account, which is especially helpful if you’ve had to reduce your contributions.
4. Look for local money. If your kids are approaching college age, encourage them to apply for scholarships offered by organizations and businesses where you live. If you don’t know about them, others likely don’t either, which means there will be less competition for the free money. Reach out to family members and friends to find out if their employers offer scholarships and apply for every one you qualify for, even if the amount is on the smaller side. It all adds up.
5. Utilize reward dollars. Several financial institutions offer credit cards that allow you to trade in your reward points for cash that can be deposited directly into a 529 account. (Just be sure that you’re paying your credit card balance in full each month, or the interest payments will cancel out the freebies.) If you have more than one child, you can often split the reward dollars between accounts.
6. Reallocate any tuition refunds you receive to your other children. Parents who used funds from a 529 account to pay for tuition—and then received a refund when the coronavirus hit— need to put that money back into their child’s account to avoid paying the penalty on it. But what if your child graduated last May? It turns out you can reallocate that money to one of your other children’s college accounts. If you only have one child, put the money back into their account anyway for future educational expenses, such as graduate school.
*Source: The U.S. Bureau of Labor Statistics