The Ultimate Guide to Saving for College

Making Wise Investment Decisions

As with any investment, you will need to determine your risk tolerance.  Most plans have investment portfolios that range from aggressive to conservative and have a general recommendation for which funds you should invest in depending on the age of your child.  For example, it’s recommended to invest in the most aggressive option when your child is still an infant because the increased level of risk means potentially larger growth. You will gradually shift to a more conservative allocation as they prepare to finish high school and need immediate access to the funds to protect against sharp market downturns that can force you to borrow more than you have to because of being too aggressive for too long.

Coverdell Savings Accounts

A second college savings plan option is the Coverdell Education Savings Account that is often called the “Education IRA.”  This account is very similar to a Roth IRA because you can invest the money however you want in any stock, bond, or mutual fund.  Not just the handful of options offered in a 529 savings plan that might not perform as well as funds in your non-education brokerage accounts.  The biggest drawback to this option is that you can only contribute up to $2,000 per year or $36,000 total ($2,000 for 18 years) before factoring interest, dividends, and appreciating share prices.

Earn College Credit in High School

In addition to trying to stash away money in a tax-advantaged savings account, another easy way to save money for college is to be proactive and earn college credit in high school.  The general college courses most students take during their first two years are usually more in-depth classes of material they covered in high school except they cost more money.  Why sit through U.S. History or Grammar & Composition a second time if you aced the course in high school, right?

By taking college-level courses in high school, your child can “double up” by earning college credit and high school credit simultaneously.  This is accomplished through the Advanced Placement and Dual Enrollment courses.  Plus, many school systems grade these courses on a 5-point scale instead of the traditional 4-point scale meaning an “A” is a 5.0 instead of a 4.0.  The higher grade scale can boost their cumulative high school GPA and increase the likelihood of receiving a scholarship, grant, or accepted into a more selective college.

Advanced Placement

The Advanced Placement (AP) program is the most recognizable way to earn college credit in high school.  Perhaps you even took an AP class during your high school years.  At the end of the school year, students in the AP classes take an exam that is graded on a 5-point scale to determine if their test grade qualifies for college credit.  Each college has different acceptance policies, although, you normally need to score a 4 or 5 to receive the equivalent of two college semesters (6 credits).

There are over 30 AP exams that your school district can offer ranging from U.S. History, Calculus, to Spanish. While earning college credit isn’t guaranteed, the approximate $92 for the test costs a third of an equivalent course at a public, 4-year university, these exams can easily save hundreds or thousands of dollars and allow your child to graduate early.

Dual Enrollment

Another option that has been gaining in popularity is Dual Enrollment. These courses are offered when high schools partner with a local community college or university.  If your child plans to attend a public in-state college, this option is usually a more guaranteed path to earn college credit in high school while the AP program is usually ideal when attending a private college or out-of-state school because of its national recognition.

Dual Enrollment is very comparable to the AP program.  There is a college-level exam administered at the end of the academic year that determines if the student understands the material sufficiently to be awarded college credit for the course or only high school credit.  As each school district has different AP & Dual Enrollment options, the school might offer Dual Enrollment classes, such as Physics, that the AP program currently doesn’t offer an exam for.

Summary

Saving for college might feel like an impossible task.  You might not have any trouble saving for college or your other financial obligations might only allow you to pay for the first semester and borrow for the remaining years.  The important thing to remember is that saving for college isn’t an “all or nothing” proposal.  Anything you save now will go a long ways to giving your child(ren) a financial head start as they prepare to enter adulthood with as little debt as possible.