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Everything You Have to Know About Saving for College

College Savings.

If you're a student who is planning to take out loans to go to college, or if you're a parent that is looking for college saving tips, this article is for you. We will go over debt statistics along with the rising costs of tuition. We will compare the average prices for different schools side by side, and we will go over several savings programs you can take advantage of so you won't have to take out so many student loans. You want to graduate from college and not have to worry about being crippled by student loan debt, and this article will help you do that.

How Much Student Loan Debt Exists in the United States?

As of early 2017, there was officially more debt from student loans than ever before. Over 44 million Americans have stacked up over $1.4 trillion in student loan debt. In 2013, around of 70 percent of graduating, students had taken out student loans to help pay tuition costs. This was a 25 percent jump from the year before. On average, students can expect to graduate with $25,000 to $30,000 in loan debt. This can be a huge burden to someone who is just starting out their lives and their careers. They have to race to find jobs before the grace period ends and the repayment starts.

Student Loan Debt Statistics By Loan Type

Loan Loan Amounts Number of Borrowers
Consolidation $464.5 Billion 12 Million Borrowers
Grad PLUS $55.7 Billion 1.1 Million Borrowers
Parent PLUS $81.5 Billion 3.4 Million Borrowers
Perkins $7.9 Billion 2.6 Million Borrowers
Stafford Subsidized $272.5 Billion 29.4 Million Borrowers
Stafford Unsubsidized $449.6 Billion 27.9 Million Borrowers
Stafford Combined $722.2 Billion 32.6 Million Borrowers

These statistics are caused by the rising cost of tuition, and the rising cost of daily life. It is harder and harder for parents to save for their children's college fund, so students turn to loans to pay their way through school. Tuition costs have skyrocketed, and student loan debt is reflecting this trend.

How Fast is College Tuition Rising?

For more than ten years, college tuition in costs in public universities and schools have been rising faster than the rate of inflation. Since the 2001 to 2002 academic year, fees, and tuition have increased over 5.3 percent, and they just keep on rising. This phenomenon is contributed to several reasons, and they are listed below.

  • In the decade from 2000 to 2010, the average funding per student that was attending a public University was cut by over 20 percent. This works out to roughly $6,500 per student instead of roughly $8,100 per student.
  • In 2008 the recession hit hard, and funding for schools took a massive loss. It declined by over 14 percent, and it has not recovered.
  • Higher education support varies by a large margin from state to state. For example, in 2010, the average public funding per student ranged from a negative 17.9 percent to a positive 16.5 percent. This is a huge difference in public funding percentages.
  • There have been large funding cuts for a least 33 percent of the states from early 2001 until late 2011. Also, in more than half of the time from 2001 until 2011, over 66 percent of the states had funding cuts.
  • The average price of tuition after grants were deducted rose over 33 percent. This made the cost go from around $3,400 up to $4,500.

Public Colleges and Universities

An article that was published in U.S. News & World Report showed that from the 2007-2008 school year to the 2010-2011, costs to attend rose by over 5 percent. BusinessWeek magazine published a report that costs at public colleges and universities rose over 10 percent from 2007-2008 to 2008-2009. Finally, FinAid put out a report that estimated that the cost to attend a public college or university would raise an around 5 percent to 8 percent each year.

Private Colleges and Universities

The average private non-profit four your college has a rising tuition cost of over $1,100 (3.6%), from $32,330 in 2015-2016 to $33,540 in 2016-2017. The average total charges for a private college or university are $45,370. These rates are rising faster than the public college or university rates, and a lot of that has to do with the fact that there is a smaller number of private schools compared to public ones.

The Average Yearly Costs for Different Types of Schools in 2017 Compared to 2016

Public 2 Year (In State) Public 4 Year (In State) Public 4 Year (Out State) Private Nonprofit 4 Year For-Profit
Tuiton and Fees
2016 - 2017 $3,520 $9,650 $24,930 $33,480 $16,000
2015-2016 $3,440 $9,420 $24,070 $32,330 $15,660
$ Change $80 $230 $860 $1,150 $340
% Change 2.3% 2.4% 3.6% 3.6% 2.2%
Room and Board
2016-2017 $8,060 $10,440 $10,440 $11,890 ---
2015-2016 $7,930 $10,150 $10,150 $11,540 ---
$ Change $130 $290 $290 $350 ---
% Change 1.6% 2.9% 2.9% 3.0% ---
Combined Totals
2016 - 2017 $11,580 $20,090 $35,370 $45,370 ---
2015-2016 $11,370 $19,570 $34,220 $43,870 ---
$ Change $210 $520 $1,150 $1,500 ---
% Change 1.8% 2.7% 3.4% 3.4% ---

Why are Private Schools More Expensive Than Public Schools?

Several factors come into play when you're saving for college. If you want to apply for a private college, you have to be ready to spend more each year on your tuition. We will talk about why private colleges seem so much more expensive than public colleges.

  • Funding Differences. Public colleges get money from the government of the state they reside in to help with their funding. Private colleges do not receive this government funding, so they have to make up the cost elsewhere.
  • Name Recognition. A lot of students choose private colleges because they think that it'll look better on their resumes. While it is true that private colleges can be more well known, this doesn't make a huge difference.
  • Residents Versus Non-Residents. If you live in the same state your public college is located in; you'll get a tuition cut for attending it. If you're from out of state and you want to go to a public college, you'll get charged more. Private colleges charge each student the same amount, regardless of whether or not they live in the state.
  • Size. Public universities can be very large, and they can easily have thousands of students each year. Private colleges are smaller, and they have a more selective admissions process. This means that your private college has to make up the lower student admissions by raising their tuition costs.

Comparing Bachelor's, Doctoral, and Master's Degree Prices with a Public and Private College

Public 4 Year In State Private Non-Profit 4 Year
Bachelor's Doctoral Master's Bachelor's Doctoral Master's
Tuiton and Fees $7,110 $10,510 $8,310 $32,400 $40,980 $28,890
Room and Board $9,990 $10,840 $9,680 $11,040 13,580 $11,220
Total Amount $17,100 $21,350 $18,020 $43,440 $54,560 $40,110

What Programs Are Available to Help with College Costs?

Now that you have an idea of how staggering the student loan debt statistics are, and the price differences between private and public colleges, we'll talk about saving programs. There are several available that you can take advantage of so you won't have to take out so many student loans.

529 Plan

This plan was created by the IRS in 1996, and it gives tax benefits for anyone who chooses to use this type of plan. Each state has its own plan and its own regulations, and as long as you're college is qualified to use this plan, it can be used on out of state colleges. There are two main types of this plan that you can choose to use for your college savings.

  • Prepaid Plans. Prepaid plans let you pay either all of your tuition or part of it at once. It can be used for public or private in state and out of state colleges.
  • Savings Plans. If you pick a 529 savings plan, it works like a 401K or an IRA account, and you have several options you can pick from. Your investment amount will fluctuate depending on which options you choose. You will also be able to see how each 529 plan's investment plan is doing by checking their quarterly reports.

You can enroll in each of these plans in two ways. The first way is to contact your state's 529 plan office and speak with the manager, or you can visit a financial advisor, and they will help you enroll.

Tax Benefits. This plan offers some of the best tax benefits out of any college savings plan. You won't have to pay taxes on the money when you take it out to pay for school, and over 30 states currently offer either a full or partial tax deduction or credit. Each time you add funds to this account, you can claim state tax benefits. You will also be named the beneficiary of the account, so you won't have to worry about the money being used for anything but tuition. Finally, most of the plans work as automatic investments, and they withdraw from your account, or they make payroll deductions as well.

Education Savings Account (ESA)

This account is set up by the college student's parents when they're younger, and the parents contribute to it to build up funding. You have to contribute each year before you file your taxes, and you can only continue to add money to the education savings account until the beneficiary reaches 18 years old. Once they reach 18, they must provide proof of college costs like room and board, course fees, and books to be eligible to withdraw the money. There is a yearly $2,000 limit for contributions, and this must be paid in cash.

Prepaid Tuition Plans

This plan works as an alternative to the traditional 529 plan. If you're sure your child is going to attend an in state public university, this could be the right option for you. You can set this plan up like the 529 plan, and it will do automatic withdrawals any payroll deductions.

The downside to a prepaid tuition plan is if your child decides to go to an out of state college they will only get a part of the money. For example, if you pay for one year at Texas State University and it is $10,000, and the tuition goes up to $17,000, you child will get one full year of college if they go to an in state college. However, if they choose to go to an out of state college, they'll get around $13,000 and not the full return.

UGMA and UTMA Accounts

If your child doesn't plan to attend college and doesn't worry about financial aid, this may be an option to explore. With a UGMA and UTMA account, the first $1,000 that is deposited is not taxed, and the second $1,000 that is deposited is taxed at the child's income tax rate. There are no guidelines or restrictions on how this money is used, as long as it goes to things that directly benefit the minor. A downside to this plan is that the parent has less control, and when the child reaches 18 or 21, they can use the money however they like.

Comparing The Different College Savings Options

529 Savings Account Education Savings Account Prepaid Savings Account UGMA and UTMA Account
Access to Your Money Yes Yes Yes No
Account Control Yes Yes Yes No
Age-Based Options Yes No No No
Earning Potential Yes Yes Yes Yes
Federal Tax Breaks Yes Yes No No
High Contribution Limits Yes No Yes Yes
Low Financial Aid Impact Yes Yes Yes No
State Tax Benefits Yes No No No
Total Flexibility No No Yes Yes

Other Tools to Save for College

  • Create a Budget. When you begin saving for college, it is a good idea to create a worksheet you can use to track you're monthly budget. Make sure to include things like credit card payments, health expenses, housing expenses, and anything miscellaneous. Have one column for your budget and one for your actual expense. Total them up each month, and you'll easily be able to see where you have to make adjustments.
  • College Cost Calculator. A simple tool that you can use and update as you need to is a college savings calculator. This will give you an amount you have to invest each year, so your child's tuition will be either mostly or completely covered. You put in the annual cost along with how many years until college. Finally, put in inflation costs and click submit. You'll get a rough estimate of what you have to save.
  • Diplomas Without Debt. This is a new program that is designed to help save for college by taking in a variety of factors. This free platform takes things like the person's state of residence, income, and savings goals and calculates the amount a child's parents have to save to pay for tuition. It will take all of your factors into consideration and offer savings plans like the 529 or ESA accounts.
  • Gift Registries. There are several online college gift registries a parent can set up and ask friends or family to donate to. They act like crowdfunding pages, and they can be shared over social media. The parents can set up updates, and some sites offer the opportunity to purchase gifts cards and donate to certain savings funds. Sites like Gift of Education and Gift of College are excellent examples of these types of sites.
  • Mobile Apps. Mobile apps to help with the college have been gaining popularity at a quick pace. The College Ahead app by Sallie Mae is a good example. This app will estimate the cost by the college type, whether or not your student plans to live on campus, and the degree type.

Tips for Successful College Saving

Now that we've talked about the cost of college, different types of savings accounts, and tools that can help you, we'll go over a few general tips to help you save for your child's college fund.

  • Look into Tax Credits. While you're saving for college, look into possible tax credits and deductions. Things like the Lifetime Learning Credit are good options to look at if you're actively paying for or saving for college. You may also be able to get deductions for fees, tuition, and student loan interest.
  • Rewards for College Credit Cards. If you use a rewards credit card, there are cards available that will deposit any rewards you earn directly into your college savings account. The Visa Fidelity is one card that offers 1.5 percent on the first $15,000 you spend in the first year, and then 2 percent on anything that is spent after that.
  • Set Savings Goals. Set a monthly savings goal and adjust it each year for inflation. For example, if you put $100 a month into the account and the next year you want to adjust for 5 percent inflation, you would invest $105 each month next year. Keep doing this each year and keep adjusting it accordingly.
  • Take Advantage of Automatic Payments. Set an automatic monthly payment and forget it. This is one of the easiest ways to save for your kid's college saving fund. As long as you have money in the account to cover the automatic withdrawal, you won't have to worry each month.
  • Treat it Like a Retirement Account. You should treat your college savings fund like a retirement fund. The sooner you start it, the better off you'll be when college time comes around. Start investing aggressively when your child is younger and slide back to a more conservative amount as your child ages.


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