fbpx
Search
Close this search box.
College student carrying backet in front of school building

How to Solve the College Savings Challenge: 4 Ways to Start

Katie Krumpter, NYLAG Senior Financial Counselor

One of the biggest concerns for parents, sometimes even before they have their first child, is how they will cover the cost of college for their kids. Much of this stems from the fact that the generation having most of the children these days, millennials, have the most student loans of any generation ever and the lowest homeownership rate of any prior generation. Georgetown University published a study in 2021 that showed that, while 66% of  jobs require a postsecondary education today (versus 25% in 1980), the cost of college has increased by a whopping 169% while the pay for workers aged 22-27 has only increased by 19%.

So, how does one afford college tuition? The answer: the same way you do with any significant cost–saving early and often. Below we explore the different ways in which you can start tackling this issue:

1. 529 Plan
The most tax advantaged way to save for postsecondary education expenses is through a 529 Plan. A 529 Plan is an investment account that grows tax free, as long as the funds are used for qualified education expenses, as defined by the plan. Some states will even give a tax deduction to residents who contribute to their state’s plan (New York does).

2. NYC Kids RISE Save for College Program
Open for people who live in New York City and have a child in public school, this program gives every NYC kindergartner a starting contribution of $100 to a 529 plan in their name. There are certain other milestones that, if completed, allow for additional contributions from the program. Immigration status does not matter–every new kindergartner can participate, and the program rolled out citywide in fall 2021.

3. FAFSA application
Every college student should also fill out their FAFSA form, which will determine eligibility for PELL grants as well as scholarships your school may offer. The FAFSA must also be completed if you want to take any federal student loans. There are also thousands of scholarships that people can apply for, and many resources to locate them. Obviously, the internet is an excellent resource, but there are also books listing available scholarships, such as The Ultimate Scholarship Book 2023.

4. Consistent savings
Lastly, a lot of people worry about how to save such a large amount, so it’s sometimes hard to get started. Maybe when your child is too young for school your monthly contributions can’t be much because you are paying for childcare. Nevertheless, you can start small and then increase your monthly contributions.

Suppose you contribute $25 per month to a 529 plan for the first two years of your child’s life. Then you increase your savings to $100 per month from age three until they turn 16. Finally, after age 16, your savings drop to $0. The table below shows you what you could accomplish by saving consistently. Note that these calculations assume an average return of 6% per year and, in this example, the monthly returns vary for a more realistic effect. As you can see, based on the above assumptions, you could save as much as $30,000!

Year Initial savings amount (Start of year) Total yearly savings contributed Return per year (%) Return ($) Final amount (End of year)
Year 1 0 300 1.88% 4.19 304.19
Year 5 3,109.46 1,200 6.25% 240.36 4,549.82
Year 10 11,273.53 1,200 6.15% 751.84 13,225.37
Year 15 23,597.26 1,200 8.21% 2,063.47 26,860.74
Year 18 30,696.63 0 -2.18% -668.90 30,027.73
College savings graph

When thinking about having a child, sometimes the cost of college is a deterrent. While college can be incredibly expensive, remember that there are some ways to save for it. Just like saving for retirement, saving on a consistent basis is one of the most important things.

Still have questions?

NYLAG Financial Counselors help you create a plan to secure a financially stable future. 

Share this post

Related Articles

NYLAG Voices: John’s Story

In a previous life, John* was an electrician. When his partner passed away, he was evicted from his home and entered New York City’s public shelter system. Sleeping in a

Read More »

Pro Bono Impact: 2023 Year in Review

At NYLAG, a commitment to providing volunteer opportunities and recruiting talented pro bono attorneys is a natural extension of our mission to deliver the highest quality civil legal services to

Read More »

NYLAG Voices: Meet Dorit

In 2017, a wave of anti-immigrant rhetoric and policies shook our world and our work. In response, NYLAG’s Domestic Violence Law Unit (DVLU) mobilized to train attorneys and advocates to

Read More »
Scroll to Top