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How do normal people pay for college?
College. When you are sitting at home cuddling with your newborn, college is likely the furthest thing from your mind - after all, you have 18 years before you need to worry about college! The truth is if you don't start thinking about it now, life gets in the way.
Should we take the kids on vacation this year, or put that $5000 in their college savings accounts? Should we keep driving the reliable car we've had for five years, or take out the 5 year loan for that new car?
The answer is that what's right for you may not be right for the next person. What is important is that you start saving early! I have included a few examples that I've learned about, or used, as we've gone through this ourselves. We are halfway through our son's college career and so far have not had to take out a loan. That said...we have made our son take out the available $5500 unsubsidized loan each year (which is why we have to complete the FAFSA). Our intention is to pay down a portion of his loan (50%) if he continues to do well in college, as his graduation gift! In our mind (and not everyone is like us), having him take out these loans means that he has some "skin in the game" as far as his education and how much effort he puts into it. Obviously, the difference in graduating from college with $22,000 in debt or $11,000 in debt is substantial, so he has worked very hard to make sure that he is putting himself in a good position to start out!
When did you start saving for your child's college education?
Savings / Investments
Set aside a set amount now, so that you don't miss it later! Whether it's an investment account or just a savings account at a bank - it can make a difference to the debt that you or your child are left with after college is done!
If you get paid 26 times per year, and can afford to set aside $100 per pay, DO IT! In 18 years, that adds up to $46,800. If $100 seems too daunting - put aside $25 a week, which will save half of that ($23,400) over the same 18 years.
Intranet based program - Upromise
Upromise is website that allows for you to set up a free account. There are certain stores affiliated with the website and if you shop in those stores (you have to enter through upromise) then the stores will put a percentage of your purchase (typically 1-5%) in an account for eligible college expenses. This is a great way to pay for books - and grandparents, aunts and uncles, and just friends can all be linked to your child's account adding to the rewards balance!
College Savings Plans
Programs like the 529 College Savings plan are things you should talk to your accountant about - but the plans are accepted by a large number of schools. You are also eligible to write off a small portion of what you contribute on your taxes each year. If you decide to go this route - it's a great thing for grandparents to contribute to for your little one's birthday or other holidays!
Free Application for Federal Student Aid
F-A-F-S-A: Five letters I dread every January. Most people will not have their child's college expenses saved up, in full, by the time it comes around. For those that don't, the Free Application for Federal Student Aid is one of those things that just has to be done - love it or hate it! You may make too much money to receive grants (free money) - but you still have to complete the FAFSA in order for you, or your child, to be eligible for federal loans (both subsidized and unsubsidized)!!
Most states also use the FAFSA to determine state aid and loan eligibility. If your child is just finishing high school, and hasn't decided on their college yet, that's okay! You can choose to have your FAFSA application sent to 10 different schools (the schools do NOT see what other schools your application is sent to). There are two key steps to completing the FAFSA: know the date your FAFSA application is due (this is not the same for every state); and get your taxes (and your child's taxes) done first! The application tells you, specifically, what line items on your taxes go into which blanks - I believe it even gives you the option to directly import your tax information (but I don't do it that way).