How you save for college depends on how old your children are when you start saving. Here’s your year-by-year guide.
Birth through 7th grade: From the time your child is born, invest $50 a month in a college fund, such as 529 fund (use automatic payroll deductions if you’re not the conscientious type). In 18 years, a fund that earns 6 percent a year will be worth about $20,000. And that much per child, along with $20,000 in student loans and some belt-tightening while your children are in college (about $5,000 per year, roughly what you already pay to feed, clothe, and shelter one teenager), should be enough to pay the average four-year tab, says certified financial planner Kevin McKinley.
8th through 10th grades: If you don’t have any money saved at this point, a prepaid 529 plan, which protects against tuition increases, might be a good way to start. Only 18 states offer this option, it can be hard to transfer to new states, and you will incur penalties for early withdrawal in some states—scrutinize your state’s fees at collegesavings.org. By this time, your child may have a clearer idea of what sort of school he or she might want to attend. For students interested in a private university, the independent 529 plan is good at about 300 private, mostly small liberal arts colleges.
11th and 12th grades: Still haven’t managed to sock away tuition by now? The Federal Parent PLUS Loan program lends parents the balance of any costs minus any financial aid. You’ll pay 3 to 4 percent of the loan amount in fees and around 8.5 percent interest (it’s slightly lower if you borrow directly from the government at direct.ed.gov; ask if the college your child plans to attend participates in the program). And Federal Pell Grants, which do not have to be repaid (ed.gov), offer a maximum of $5,350 per child, based on need. Most families that qualify earn less than $50,000. If your income is significantly higher but you have more than one child in college, you may still make the cut.