Newsletter: How to Save for College and Avoid Going into Debt

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This Week at a Glance

• Student loan debt is a burden that can hamper your kids lives for decades. And while you could pay cash out of pocket for school now, the fact is that costs are rising at an alarming pace. This week, I cover 3 things I’m doing now to help my kids avoid going into debt to pay for college.
• S. stocks sank in Wednesday’s trade as investors worried about a surge in US bond yields after a weak government debt auction. This stoked concerns that the Fed will keep rates higher for longer, especially as US consumer confidence unexpectedly rose in May.
• Have you ever been on the verge of a breakthrough but stepped back because of a setback? It’s that way with investing too. When the markets shake, it’s easier to think about quitting or searching for a magic pill rather than sticking it out. That’s why last week, I discussed why sticking to your plan, not panicking, is essential for long-term success.

Be Prepared, So Your Kids Can be Spared

Choosing to go to college was one of the best investments I’ve ever made.

Doing so not only opened doors for me, it also taught me how to become a lifelong learner.

Even so, my post-secondary education journey wasn’t so smooth from the start.

You see, during my first two years in college, I was lost in this new world of higher learning.

And so, I found myself barely scraping by with a 2.0 GPA because I didn’t have anyone to show me the ropes.

But, during my junior year, as I settled into my chosen business major, everything seemed to change.

School wasn’t just about memorizing facts anymore.

No, it quickly became about understanding and applying the knowledge I was learning.

And so, for the first time, I saw the true power of education.

I saw how I could apply what I had learned at night school to my job in the morning, which allowed me to make incremental strides in my career.

So then, with this newfound motivation, by the time I finished grad school, I made the Dean’s List and graduated with honors.

Quite the turnaround, right?

Well, it certainly was, but here’s the kicker: because I’m a first-gen Romanian American, my family wasn’t familiar with the college system and we didn’t know how to prepare or save for it.

So then, despite my academic success, when it was all said and done, I was left with a mountain of student loan debt.

Now, if you’re a first-gen professional, then there’s a good chance that you’re starting to see yourself in my story.

Maybe you’ve struggled too, or perhaps you’ve wondered if traditional college is even worth saving for in a world ripe with self-learning opportunities.

Whatever your position may be, deep down, we all know how education can unlock incredible opportunities when applied in the right settings.

You know, when it comes down to it, most parents want to give their kids a head start in life.

And so, I know that if I’m serious about helping my kids get a leg up when it comes to their learning goals, then I need to help them finance their schooling without it becoming a burden to their future.

How to Save for College and Avoid Going into Debt

Indeed, if you’re anything like me, then you’ll likely want to consider options beyond paying cash out of pocket and begin funding a college savings plan, like a 529, sooner rather than later.

Because if you don’t, your kids could be stuck making choices centered around getting out of debt instead of pursuing their life’s purpose.

So then, even if you can afford to pay cash out of pocket now to fund your children’s college expenses, here are three things I’m doing to help my kids avoid going into student loan debt later on down the road:

Step #1: Understand Your Savings Target

Planning for college expenses enables you to properly estimate your future cash needs and avoid taking on debt to fund a savings shortfall.

Taking out the guesswork makes the daunting task of saving both manageable and measurable.

Ask: “What schools would my child attend, what are the current costs associated with these institutions and how many years do we have to save?”

Then, use online planning tools that factor in inflation and rising tuition fees to estimate your child’s future education need.

Step #2: Select the Right Savings Vehicle

529s, education trusts, UTMAs, Coverdell…

Different vehicles come with distinct benefits and limitations.

Understanding these nuances can significantly impact how effectively you can save for and ultimately fund your child’s education.

Ask: “What are my priorities for this education fund?”

If it’s about maximizing tax-free growth, then a 529 plan might be worth considering.

If you want to have more of a say in how proceeds are used, consider an educational trust. Either way, find the right fit for you.

Step #3: Start Saving Immediately

The sooner you start saving, the more your money can compound over time.

Starting early also reduces the risk of taking on unnecessary debt and provides a buffer against market volatility and the rising cost of education.

Ask: “Can I start making regular gifts without significantly impacting my current lifestyle?”

Set up automatic contributions to your chosen plan as soon as possible. Even modest, regular savings can grow significantly over time, reducing your future need to borrow money.

What I’m Reading

We’re all busy in the daily rush of things. That’s why I’m sharing a list of articles that I’ve read this week to help you stay on top of your own financial independence journey.

I’ve consolidated all of these links here for your ease of viewing.

• The Cost of Private vs. Public Colleges
• The Types of Colleges: The Basics
• How Much Does College Cost?
• 9 Best Scholarship Websites And Search Engines
• 10 Steps to Minimize Student Loan Debt

Thanks for taking a look!