Procrastination is the most costly way to pay for college. However, it is the most widely practiced.
It violates the basic tenet – TIME IS MONEY. Time is your greatest ally when saving for college. Every day you delay saving costs you big dollars.
Let’s say you have a 5 year old and you decide you can save $50 a month for college. If this money grows at a rate of 8%, at age 18, your college nest egg would have grown to $13,600 (before taxes).
If you wait until your child is 14, you would have to save nearly four times that much ($190 each month) to have the same amount. The $140 difference is the value of time.
Usually parents have to make up this difference in the form of parent and student college loans. Because loan interest must be paid in addition to the cost of college, loans are the most expensive way to pay for college. They rob parents of precious dollars for their retirement.
Today’s 5 year-old will need between $120,000 and $250,000 for college, assuming that college costs continue to climb at 5% yearly. Parents having trouble paying the mortgage and living expenses find this amount overwhelming. They don’t have $400-$500 a month to save for college, and understandably, they procrastinate.
So how do parents figure out a good starting point? Determine your expected family contribution (EFC), the amount your family will be expected to contribute to college based on federal financial-aid formulas.
Make this your minimum college savings target. Remember to multiply by four to cover all college years. Calculators are available at www.finaid.org and www.collegeboard.org.
Each time your income increases, recalculate and adjust your college saving’s amount. To increase your aid eligibility, do not save college money in the child’s name.
When it comes to paying for college, something buys you a lot.
Calleigh Queenan currently writes for vacuum cleaner reviews, an online reviews created to share her honest opinions based on hands-on experience on products. Calleigh is a stay at home mom and enjoys offering her tips on Hoover vacuum Reviews.
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