According to the Sallie Mae “How America Pays for College” national study, only 38 percent of families today have a plan for how they are going to pay for their children's college education, with 51.5 percent of parents wishing they had started saving much sooner.1
The importance of planning for unexpected expenses
Like most things in life that require planning and saving, the sooner you get started saving for your child's college education, the better. So when the time comes, you can both take the next step with a lot less financial stress and worry.
One of the most important things to come out of this study, is that as a parent, you can't assume that financial aid will be enough to cover all of your child's college costs. With such a large expense, it's no wonder that one-third of all families run into more than one unexpected expense when it comes to paying for college, once again, making the importance of planning ahead paramount.
So just how are Americans paying for college expenses? According to the study, both students and parents are managing to pay for college expenses from the following sources:
- Parent income and savings: 30 percent
- Grants and scholarships: 31 percent
- Student borrowing: 15 percent
- Student income and savings: 12 percent
- Parent borrowing: 7 percent
- Relatives and friends: 4 percent
And in addition to income and savings, both parents and students are implementing frugal choices as part of their overall planning efforts in order to meet their college expenses. The findings in this 2015 study, reinforce the benefits of planning ahead and proactively saving. As such, Sallie Mae recommends the following 1-2-3 approach when it comes to getting started with your own individual college savings plan:
1) Open a savings account
Set up and designate a savings account as your college fund. Deposit gifts from friends and family, and sign up for free services that let you earn cash back to save for college.
2) Make regular contributions
Set a goal, and create a routine of adding money. Even a little bit adds up over time, and automatic deposits make saving easy.
3) Explore tax-advantaged options
Put your money to work using dedicated college savings programs like Coverdell Education Savings Accounts, prepaid state college savings plans, and 529 college savings plans.