Every Penny Counts: How Education Saving Practices Have Changed and Ways to Adapt

Education-- in its broadest scope-- is the bedrock for advancement in our society. It provides a framework for expansion in technology, science, art, business, and much more. But knowledge (along with most everything else) comes at a significant cost.

One form of advanced learning is higher education found in a college or university setting. With more people wanting to attend college now than ever before, the cost of attendance has become greater. This has led more people to take out extensive loans and, unfortunately, has ultimately left them with crippling debt-- a debt many financial analysts say they may never fully recover from.

Student-loan debt is a topic under constant scrutiny and one that will continue to be researched. Analysis will change based on the educational and political climate, but what does that mean for parents who are trying to save for their children’s educational future?

Parents have the power to play a vital role in the mitigation of student loan debt. By developing a savings strategy and contributing to it from when their kids are at a young age, they can help make an educational experience whose main gain is not debt.

How To Set An Education ‘Savings Goal’

Everyone should have an educational budget in terms of a ‘savings goal,’ whether the funds will be used for college, vocational training, or any other sort of educational endeavor.  It is usually best to think of saving for the goal as a “mission.”   This perspective will help you put a structured savings plan in place, rather than feeling like you’re perpetually saving with no end in sight. This mindset will give saving for education its proper priority -- something grounded in value and meaning to you and your family.

Choice of profession or occupation is something that young children cannot make, but it is a good idea to start early with the simple question “What do you want to be when you grow up?”  It will at least start them thinking about the future.  Sometime during high school, they will need to begin to narrow down their options.  

Most professionals suggest the choice of major should come before the choice of institution.  It is a good idea to make sure high schoolers know about the Occupational Outlook Handbook published online by the Bureau of Labor Statistics.  It provides hard data on pay, training, employment outlook, etc. for about 500 difference types of jobs, ranging from janitor to surgeon.  

Some parents have their teenagers take aptitude tests to see what sort of natural abilities they have.  One of the oldest organization to offer these tests is the non-profit Johnson O’Connor Research Foundation.  It gives a battery of tests to try to help young people figure out the fields that might fit them best over the long run.  The tests are not cheap but compared to the total cost of advanced education, it represents a very small percentage and should help guide one of the most important decisions of child’s life.  

When setting your education savings goal, ask yourself these questions:

• How much money (per semester, per year) does college cost? Some fixed spending costs to include:
  • Tuition
  • Room and Board
  • Food
  • Necessary supplies (books, online supplements, computer supplies)
• What type of college options have your kids looked forward to? Finding the best college option for you and your child requires an open line of communication to set expectations. Talk through the questions below to garner a realistic picture and plan for your savings goal:
  • Are you looking into a private institution or a public one?  
  • Are you looking into large schools or small ones?  Where would your child thrive?
  • Which schools are in-state and which are not?
    • Evaluate the price difference realistically and alter your savings goal accordingly.
  • What scholarship options could be available?
    • These could be merit-based, athletic-based, need-based, or a combination.

Create a Milestone Calendar

When you create ‘big’ financial goals for yourself, it is always good to break that goal down into smaller, more manageable segments. It can be easy to get lost in the big-idea plan which could leave you feeling disoriented, off-balance, and at a loss for ways to practically put your savings goal in motion.

One great way to split things up is to set up milestones along the way. This ‘milestone calendar’ can be customized to best reflect your end goal. Perhaps you want to set up these milestone check-ins by projected semester tuition saved. If created to represent a typical trajectory for a bachelor’s degree program (average 4-5 years), implement 8-10 milestones which will represent the number of semesters saved.

These milestones can aid in motivation to achieve your educational savings goal and can actively show you the benefits of your savings strategy.

Interested in what that savings strategy could tangibly look like? Check out different 529 plans and how they could work for you and your family’s goals.

The Benefits of a 529 Plan

A 529 plan is designed to offer tax and financial benefits to encourage long-term education savings. Qualified tuition plans, or 529 plans, are sponsored by either states, state agencies, or educational institutions. These plans are funded with after-tax dollars, but the money that accrues in your account grows on a tax-free basis. Any withdrawls from the account (including any gains while the funds are in the account, are also tax-free. Essentially, a 529 plan is an investment that grows tax-free. It should be noted that this investment is created solely for the purpose of education, therefore there is a 10 percent penalty for withdrawing funds for anything other than educational purposes.  

It is important to evaluate the 529 plan you are looking at (as they vary by state and affiliated institution) to make the best financial decision for you and your family.

So far, we have discussed the importance of developing an education savings goal, questions to ask to create the best long-term strategy, and ways to maintain your educational investment. But what if you save too much?

You have a well-defined strategy and plan, but what if you have too much invested in your 529 account? Not to worry, there are many ways to thoughtfully spend the money you have left in your 529 investment account.

• Transfer the existing funds to another beneficiary. It is important to be aware of generational gaps in beneficiaries, because fees could be associated. Check the language before transferring.
  • Use the funds to help with the tuition of your next child
  • Use the funds to help further your own education
• Use the funds for other educational needs for your child.
  • A 529 fund does not exclusively apply to 4-year university bachelor programs. The funds can also be used toward trade, vocational, or technical schools.
  • Other educational needs could extend to help pay for graduate or professional schools.
• Save to help establish your family legacy.
  • You could save the funds in your account to help send a future grandchild to college
  • The money has the potential to be used in your estate planning for future generations.

Even if you have excess money in your 529 account, there are a myriad of creative ways for you to purposefully and meaningfully spend it. Creating an education savings goal is not easy, but through careful and practical planning, you are one step further to securing a legacy for yourself, your children, and many generations to come.