Apr 19, 2018 at 12:00am ET By Joanna Hughes

You’re hardly alone if the thought of paying for your children’s college tuition is an immobilizing one. But the reality is that ignoring it won’t make it go away. In fact, planning ahead can make a huge difference when it comes to helping your kids pursue their academic dreams without emptying out your bank account.

Of course, not every parent is in the same phase of life when they begin college planning. Here’s a closer look at college planning considerations for two different demographics: the young and (as yet) unencumbered and parents of teens for whom the college years are quickly approaching.

Scenario 1: You have recently graduated and are childless/have very young children.

According to the Project on Student Debt, 68 percent of 2105 bachelor’s degree graduates had student debt at an average of $30,000 per borrower. If you’re in this group, you may be wondering how you can possibly start saving for your kids’ college degrees when you’re still paying for your own. But doing so may make sense -- particularly if you go about it the right way.

Think it’s as simple as opening a savings account in your child’s name? Think again. This could actually end up costing your child thousands of dollars in missed financial aid and taxes. Says Bankrate, “Students’ income and savings have a bigger, more negative, impact on the availability of financial aid than parental assets and income….Because financial aid is determined based on income and assets from the year prior to applying for aid — in most cases, the student’s junior year in high school — students with sizable savings in their name could end up losing a large sum of free college money.”

Instead, consider other options for tucking away college funding for your child, including through 529 college savings plans, prepaid tuition plans, UGMA and UTMA custodial accounts, and Roth IRAs.

An less explored option, according to a Bank of Montreal (BMO) report?  Life insurance. Proposes The Globe and Mail, “Parents or grandparents can use life insurance to fund their child's or grandchild's post-secondary education by building up and then tapping into the excess cash value within an insurance policy, the BMO report says. The benefit of this strategy is that the growth would be tax-deferred inside the policy, it says, while it is building while the downside is that the parents or grandparents will lose control over the money put into the policy and the coverage offered by the contract.”

And don’t overlook the benefits of starting early. In fact, according to New York Life, starting to invest while your child is less than five years old is the best course of action. In addition to savings bonds and education bonds, consider STRIPS. “Many people buy zero-coupon Treasuries—known as STRIPS (Separate Trading of Registered Interest and Principal of Securities)—as they are backed by the US government and are noncallable, which means they can’t be called, or redeemed, before the maturity date. STRIPS are not issued or sold directly to investors; they can be purchased and held only through financial institutions and government securities brokers and dealers. Interest earned on STRIPS is taxable in the year it is earned,” explains New York Life.

Scenario 2: You’re a less recent or non-traditional graduate with teenage children.

When your child enters his/her teenage years, college -- which may once have felt like some intangible someday -- suddenly becomes an imminent reality. If you haven’t started saving for college yet, all hope isn’t lost. Insists The Simple Dollar, “However old your children are, if you want to help fund their college education, start saving. It is never too early, or too late, to start saving for your child’s college.”

College savings plans are a great place to start -- whenever you’re starting. Through programs like Gift of College and LEAF and can also enlist family members and friends to give directly to your child’s 529 savings plan to help it grow more quickly. And why limit the contributions to adults? Teens can pitch in, too. Whether your child babysits or has a summer job, he/she can add to the college fund while learning life skills in the process. If your child doesn’t work, the same model can be applied to your child’s allowance.

Once college enrollment officer recommends that youngsters divide their paychecks (or allowances) into three categories. "Weekly expenses, short-term goals and long-term expenses, including college...This approach will help in both budgeting and establishing a good practice that will help the student prioritize and prepare them to manage income and expenses throughout their lives. Even in the summer between graduation and first semester in college, this practice can result in a student saving enough to pay for their books and supplies for the first year,” George Walter told U.S. News & World Report.

Finally, some credit cards, like the Fidelity Investment Rewards Signature Visa Card, let you earn cash which is then directly deposited into a 529 savings account. Continues The Simple Dollar of this avenue, “Charging $1,000 a month on your card would earn $180 a year for your savings plan — hardly enough to pay for college, but every bit helps, and it can grow from there if the stock market cooperates.”

One last thing to keep in mind, regardless of where you are in the college planning process?  Most experts dont recommend going into credit card debt or neglecting your own retirement planning just to pad your child’s college saving. After all, while kids can borrow to pay for college, borrowing to pay for retirement isn't much of a possibility.

Whether you’re already a parent or kids are still just a twinkle in your eye, the concept of paying for higher education can be a difficult one. Luckily, you don’t have to do it alone thanks to a preponderance of college planning resources, including college financial planning services. In addition to helping you save smarter, these professionals also offer something that you can’t put a price tag on: peace of mind. (For more information on paying for college, check out "Everything You Need to Know About College Tuition.")




Joanna worked in higher education administration for many years at a leading research institution before becoming a full-time freelance writer. She lives in the beautiful White Mountains region of New Hampshire with her family.

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