Parents want the best for their children, and a top priority is often their education, especially college. Most parents want their children to pursue higher education after high school because they understand that an advanced education pays off, opening doors to better career opportunities and financial stability.

But with the hefty and ever-rising cost of college tuition (it’s gone up a whopping 747.8% since 1963,) paying for college is likely a parent’s biggest financial fear and a major concern for most families.

Today, the average cost of college in the United States is $36,436 per year for full-time students. Multiply that by four, and you are looking at close to 150-thousand dollars for a bachelor’s degree.

If you want to avoid the burden of high debt when it comes to your child’s higher education, it’s essential to start a college savings plan early, preferably from the time they are born or at least when they begin elementary school.

The earlier you start, the better. But what if you don’t know where to begin or don’t believe you are financially able to start saving yet? In this blog, we’re offering a little college savings 101.

We’ll tell you why you can’t rely on scholarships and loans alone, talk about several popular college savings options, and ways to save even if you don’t think you have the funds to do so.


The Importance of College Savings

Between student loans, scholarships, grants, and financial aid, numerous options exist to make college more affordable. But relying solely on these things is risky. It’s essential that parents have a college savings plan.

Scholarships are competitive, and not everyone qualifies. Even if your child secures a full-tuition scholarship, other expenses persist, including accommodations, books, transportation, and personal needs. In fact, statistics show that over 99% of college students with scholarships end up paying for some college costs.

When it comes to student loans, their availability isn’t guaranteed, especially with the ever-changing economic and political landscape. Not to mention, while loans and student aid programs can help, there is often a “gap” necessitating more funds.

Furthermore, even if your child qualifies for student loans, reducing post-graduation debt is crucial for a strong financial start. By investing in a college savings fund, you’re setting your child up for success without excessive student loan burdens.

Beyond financial considerations, saving enables your child to choose the education they want, unrestricted by financial limitations. A well-funded savings account opens doors to a broader range of educational opportunities for your child.

Ultimately, starting early and saving for college brings peace of mind. Knowing you’ve planned ahead allows you to focus on your child’s educational journey with confidence. By saving consistently, you provide a safety net that ensures unpredictable loan availability and scholarship outcomes won’t compromise your child’s education.

Plus, if your child does end up with their college expenses covered 100% or decides not to attend college, some of the savings’ options we will discuss next can still be used for other important financial goals and aspirations.


College Savings Options

Average tuition fees for both public and private colleges have been increasing annually with no signs of slowing down. While college grants and scholarships provide some relief, they aren’t guaranteed and often fall short of covering all expenses.

Parents must have a backup plan that prevents their children from facing substantial debt when they enter college. Let’s explore several effective approaches to saving for college:


Money Market Accounts

Money Market accounts offer a straightforward and effective approach to building funds for your child’s higher education. These accounts, such as the F&M Choice Money Market, provide a balanced mix of growth and accessibility.

Money Market accounts strike a balance between regular savings accounts and more complex investments. They pool funds from multiple investors and invest them in short-term, low-risk securities, prioritizing stability. This makes them appealing to individuals seeking secure yet potentially lucrative options to grow their savings.

Money Market accounts offer competitive returns, with tiered interest rates that increase as your account balance grows. This can significantly boost your savings over time, contributing to your college fund. And unlike longer-term investments, Money Market Accounts allow quick access to your funds. This is especially valuable during the college years, enabling you to use your savings for educational expenses when needed.


Roth IRAs

The Roth IRA, primarily known for its role in retirement planning, also presents an opportunity to bolster college savings. This unique investment vehicle allows you to contribute post-tax income, providing the benefit of tax-free withdrawals in retirement.

Roth IRAs also allow you to withdraw your contributions (but not the earnings) penalty-free for qualified education expenses. This dual functionality makes a Roth IRA an intriguing choice for parents considering both their retirement and their child’s college journey.

The Roth IRA’s investment options offer a broad spectrum, enabling you to tailor your portfolio to your risk tolerance and goals. Although the primary objective of a Roth IRA is retirement security, its secondary potential to support educational aspirations underlines its flexibility and suitability as a college savings avenue.


Certificates of Deposit (CDs)

Certificates of Deposit, or CDs, provide a unique approach to college savings that is rooted in security and predictability. CDs are time-based deposits where your money is invested for a fixed period at a set interest rate. This predictable nature makes them an excellent choice for those who prioritize stability.

While CDs might not yield the high returns of riskier investments, they guarantee your initial investment along with accrued interest when the term ends. In the context of college savings, CDs can play a strategic role.

By employing a CD ladder—a series of CDs with staggered maturity dates—you can capitalize on higher interest rates without compromising accessibility to your funds. This method harmonizes the advantages of fixed returns with a measured approach to liquidity.

CDs are an excellent foundation for your college savings strategy, allowing you to balance risk and reward while safeguarding your financial future.


Savings Accounts

A savings account is a reliable gateway to accumulating funds for your child’s college education. This straightforward financial tool offers simplicity and accessibility, making it an ideal choice for those seeking a safe and accessible means to save.

While savings accounts may not offer the same level of returns as more specialized investment vehicles, they provide a secure space for your money, shielded from market volatility. With the added benefit of being highly liquid, you can easily access your funds whenever needed.

Moreover, savings accounts hold distinct tax advantages, making them an appealing option for those looking to grow their college savings with minimal financial complexity.

While the returns might not be as high as some other options, the peace of mind and convenience of a savings account could well be worth the choice, ensuring that your child’s educational dreams are nurtured and supported.


Brokerage Accounts

A brokerage account is a versatile platform that allows you to buy and sell various investments, such as stocks, bonds, and mutual funds. While brokerage accounts offer flexibility in investment choices, it’s essential to consider their potential drawbacks.

These accounts lack the tax advantages associated with dedicated college savings plans like 529s (which we will discuss next), meaning you might miss out on tax benefits designed to aid education expenses. Furthermore, investments within brokerage accounts aren’t shielded from market fluctuations, potentially leading to losses that could impact your college savings.

Moreover, these funds are accounted for in the beneficiary’s assets and Expected Family Contribution (EFC) calculation for financial aid, which could potentially impede eligibility for need-based support like grants, work-study programs, and subsidized student loans.

Brokerage accounts aren’t a bad choice, but you should consider safer alternatives such as a Savings account, Money Market account, Roth IRA, or Certificates of Deposit.


529 College Savings Plan

A 529 college savings plan is specifically designed to save for education expenses. Your earnings grow tax-free as long as they are used for qualified education expenses like tuition, books, and other college-related costs. Additionally, in many states, including Tennessee, contributions are eligible for a state income tax deduction.

529s are a popular choice for many seeking to save and invest funds for future college expenses, primarily because of their tax advantages. But they have several drawbacks, including penalties should the designated beneficiary not utilize the account. Withdrawing funds may entail both taxes and a 10% penalty on earnings left unused for qualified college costs.

Also, like brokerage accounts, 529s aren’t excluded from your child’s assets in the Expected Family Contribution (EFC) calculation, which might influence eligibility for need-based financial aid.

Additionally, the investment choices within 529 plans could be limited and coupled with high fees, constraining your investment flexibility. While 529 college savings plans are not bad, it is advised to consider alternative savings strategies when charting your college funding approach.


What About Personal Loans?

Private lines of credit can be a great resource for filling potential funding gaps, especially if your child plans to minimize work commitments during their college journey. These personal loans can address bills and expenses beyond tuition, including groceries, rent, transportation, a computer, and even a touch of leisure, such as a well-deserved spring break escape.

However, personal loans typically aren’t designed for college financing. Many lenders don’t permit personal loans for educational expenses, and even if they did, eligibility could be a challenge for students needing more substantial income or credit scores.

Additionally, factors like immediate repayments, potentially higher payments and interest rates, and limited tax benefits should encourage reconsideration.

While private loans certainly have their merits, exploring the financing avenues mentioned above is a much better approach to ensure a financially sound college experience.


Maximize College Savings with Multiple Savings Accounts

To effectively secure your child’s educational future, we recommend a comprehensive approach to college savings. While each financial instrument mentioned has its strengths, combining multiple options can optimize your savings potential.

Our team of educated financial officers can help you customize a well-rounded plan that integrates various options for maximum growth potential and flexibility.

We offer a range of savings instruments, including Money Market accounts, CDs, traditional savings accounts, and Roth IRAs, all tailored to meet your specific needs. By working with us, you can ensure that your child’s aspirations are fully supported.


Creating College Savings Even on a Tight Budget

Saving for college expenses can seem impossible for families living paycheck to paycheck. However, with the right financial plan, even those on a tight budget can pave the way for their child’s educational journey.

By examining your financial landscape and making small adjustments, hidden possibilities can be revealed that can free up resources for a dedicated college fund.

Here are a few tips to consider. Remember, every small contribution counts!


Trim Unnecessary Expenses

Take a closer look at your regular expenses that might be nice but aren’t a necessity. Cancel subscriptions or services you no longer use and think about reducing spending on non-essential items like salon treatments or car detailing. By redirecting these funds, you can boost college savings and get closer to education goals.


Limit Eating Out

Cook at home and opt for brown-bag lunches a few times a week instead of dining out. This minor change can yield significant savings over time, adding up to a noteworthy contribution to your college fund.


Automate Savings

If possible, automatically transfer a small amount from your paycheck into your college savings account. Even a modest contribution can accumulate over time.


Side Hustles

Explore part-time jobs or side gigs that can supplement your income. The extra funds generated can serve as a valuable addition to your college savings.


Make the Most of Unexpected Money

Allocate any unexpected financial windfalls towards your college fund, such as tax refunds or work bonuses. These occasional boosts can significantly bolster your savings.


Revise Utility Usage

Make a conscious effort to reduce energy and utility consumption. Lowering your bills can free up additional funds for saving.


Engage in Swaps

Consider swapping goods or services with friends or neighbors rather than purchasing them outright. This barter system can save you money that can be directed towards your college fund.

Prioritize Financial Literacy

Invest time in learning about personal finance and budgeting. Acquiring these skills can help you make informed decisions and uncover new avenues for saving.


Start Your Child’s College Savings Fund Today at F&M Bank

At F&M Bank, we understand that a successful college savings plan requires a multi-faceted approach. Our financial experts will work alongside you to explore the full range of options available and create a diversified portfolio tailored to your needs.


Visit us at one of our branches today, and let us help pave the way for your child’s bright and secure academic future.