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What is the most important investment for a parent? If your answer is “my children’s education”, you are not alone. Today, families spend $26,373 per year to fund their children’s studies. And, undoubtedly, for young minds, the right education can make a difference in the life they’ll live.
But tuition fees have skyrocketed by 1375% since 1978, and 38% of students who drop out of college do so due to financial concerns. If you agree that money matters shouldn’t stand in the way of your child’s education, here are some solutions to consider.
1. Take Out a Federal or Private Loan
Taking out a loan is the most straightforward way to fund your children’s education, and it can even help you build your credit score. There are two main options to consider:
- Federal student loans – The Free Application for Federal Student Aid (FAFSA) allows your family to receive need-based help based on your financial circumstances. If your child is dependent on you, your information will be required for the application, and you might gain access to a Parent PLUS Loan.
- Private loans – Private loans are provided by an independent lender and might help you bridge the financial gap left by a federal loan or other aid. You can find more information about this type of loan here: https://www.sofi.com/private-student-loans/
2. Start a 529 Savings Plan
529 plans are savings plans designed to enable tax-free withdrawals to cover educational expenses. They also allow you to make higher contributions compared to traditional saving plans. There are different types of 529 plans:
- Prepaid Tuition Plans allow you to lock in the price of tuition fees and prepay them for when your children are ready to go to college.
- College Savings Plans allow you to save for the education-related expenses of a beneficiary.
- Coverdell Education Savings Account allows families with reduced income to accumulate tax-free savings
3. Consider Using Your Retirement Savings
Helping your children attend college can set them up for a high-paying career, which makes taking care of college fees a smart investment for the whole family. That is why you might reconsider your investment strategy for your retirement money, and use your funds towards your children’s education.
Early withdrawals for education expenses don’t come with penalties, but only holders of an IRA account under the age of 60 can benefit from this option.
4. Look For Relevant Scholarships and Grants
While only 1 in 8 students is likely to receive a scholarship, monetary grants have helped nearly 60% of awarded families pay for college in 2020.
The competition is undoubtedly fierce – but this shouldn’t deter you from looking for niche scholarships to apply for. Get in touch with your child’s university to learn more about the internal monetary awards they offer and find available grants at your state grant agency and local organizations.
5. Use Your Home Equity or Invest in Rental Properties
Real estate often represents a smart investment move – and your portfolio might pay back when you least expect it. If you own your home or other properties, they can help you pay for your children’s education in more than one way:
- Use your home equity – Through your home equity, you can access a home equity line of credit (HELOC), use a cash-out refinance option, or take out a home equity loan. Since these financial moves can be tricky, make sure to partner with an expert financial advisor.
- Rent out properties you already own – Rental prices have been consistently on the rise, and they are now at the highest they have been in decades. Renting out properties can help you keep up with the monthly repayments of your child’s tuition fees.
While the right college can change your children’s lives, no parent would want their kids to face the challenge of paying for their education alone. However, sharing this important financial responsibility can be beneficial – for them and the whole family.
Not only does too much support hurt their grades, but it can also throw the household’s financial stability off balance. Some options to involve your children include helping them secure a part-time job, opt for an online degree, or leverage their sports or art talent, which might grant them a scholarship.
Any parent dreams about their children’s future achievements, and helping them pay for their education is the best way to open up career and development opportunities. Whatever your chosen financial strategy is, make sure to start saving or investing early on – your hard work will pay off!