Saving for Education: What You Need to Know  

The cost of education is skyrocketing. Student loans are increasingly hard to manage. And no matter which chapter of your life you’re in, you have other priorities to consider. You may be navigating the costs of a growing family, paying a mortgage, or funding your retirement accounts.  

How, amidst all that, are you supposed to prioritize saving for education?  

There are two basic ways to think about affording higher education. You can either designate and grow specific savings for education—or try to pay less for education itself.  

Here, we’ll shed a little light on both sides of that equation.  

Reality Check: Here’s What College Costs Currently Look Like 

If you look at the education costs America is facing, the situation certainly seems grim.  

Here are just a few stats surrounding current American education costs.  

• Americans owe $1.75 Trillion in student loans.  
• There are nearly 48 million student loan borrowers. 
• 1 in 7 people has student loans. 
• The average student loan borrower owes nearly $30,000.  

Those numbers are high, but that doesn’t mean education is inaccessible. It does mean that you need to approach saving for education strategically to afford college for yourself or other family members.  

You could take out more student loans, but that may not be the best financial decision for you and your family, and you don’t want to tap into your retirement accounts or other strategic savings to pay for your education.  

Fortunately, you do have other options.  

Saving for Education Strategically: How to Set Money Aside for School 

If you’re looking to save funds explicitly designated for education, there are two common ways to get the job done: 529 savings accounts and taxable investment accounts.  

• 529 plans are tax-advantaged savings accounts meant to help you pay for education. Funds in 529 plans can cover some costs for K-12, post-secondary, and even apprenticeship programs. In a 529 plan, savings grow with the benefit of tax deferral – and you don’t have to pay taxes on the withdrawals you make as long as they’re used for education.  
• Taxable investment accounts may be another smart way to save for education, depending on your circumstances and goals. Taxable investment accounts don’t have any associated penalties if you use funds for things other than education, should your plans change.  

If you’re working with a financial advisor, they’ll be best suited to help you determine which type of investment or savings vehicle is best for you and your goals.  

Saving more money for education is far from the only strategy available to you for making education affordable. An even more practical strategy is to make school less expensive in the first place. 

Options for Making School Less Expensive 

Making school less expensive can sound unrealistic, but it’s possible if you’re thinking strategically. Here’s what we’d recommend.  

• Be realistic about what you and your family can afford. Getting saddled with a massive bill for a school outside your price range is a lose-lose situation. Don’t make aspirational school choices! If you’re thinking about education for children, don’t let them test drive a school they can’t afford—and don’t forget your/their need for cash flow during college.  
   
  Have a school in mind? Look up its per-semester costs, and research standard financial aid packages to get a sense of required funds.  
   
• Understand how schools calculate your ability to pay for education. The FAFSA, or the Free Application for Federal Student Aid, is one of the ways a school gauges how much you can pay. College students fill out the FAFSA yearly, noting their family’s available assets and income at the time they fill it out. Most people should fill this out, even if they don’t think they’ll qualify. The FAFSA is required for most merit-based scholarships, not just need-based aid.  
   
  Each school views things like home equity, student assets, and family circumstances—such as divorce differently—but the FAFSA is usually where schools begin this determination.  
   

• Consider how parent, child, and grandparent assets can influence aid eligibility. The types of assets a family has—and who technically owns them—matter when filling out the FAFSA and determining eligibility for aid.  
   
  For example, if a child’s grandparents are helping with tuition and paying the school directly, that money could be considered income for the children. Generally, it’s better to have assets in the parents’ name for financial aid and education purposes than in the child’s name. It’s critical to consider all your assets, where school money is coming from, and what your financial situation may look like to your school as you’re filling out your FAFSA.  
   
  This can get quite complex. Having your financial advisor help you sift through your assets before filing for financial aid is a good idea.  
   
• Know the difference between merit-based and need-based financial assistance.  
  
  • Merit-based financial assistance includes awards recognizing outstanding academic performance, talents, or experiences. For example, consistently high grades may make you (or your child) eligible for an academic scholarship—which directly reduces the cost of college. Acing standardized tests can help with merit-based assistance, too. Consider hiring a tutor if you or a family member needs help moving the needle on the SATs, GREs, or other required exams.  
    
  • Need-based financial assistance is awarded to those who have financial needs. This can come in the form of scholarships and grants, as well as student loans and work-study opportunities that do not directly decrease the cost of college but can make the costs more manageable.  

Your strategy for making school less expensive will probably be selecting an affordable college, organizing your finances to ensure that your school views your need for aid accurately, and working hard to earn merit-based scholarships.  

Saving for Education? Here are Your Next Steps 

The first step in saving for education is knowing how much you’ll need to save. You can use free resources to find accurate, updated information, especially surrounding colleges and universities. These resources include collegboard.org, collegedata.com, and freecollegemoneyreport.com. 

Whether you’re more interested in starting a savings or investment account earmarked for education or want assistance as you reduce the cost of school itself, working with a financial advisor can help you stay on track.  

 The team at Commas is ready to provide the support you need! Interested in putting together a plan to make saving for education work for you? Reach out to our team today! 

Commas is a wholly-owned subsidiary of Truepoint Inc., a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A and Form CRS filed with the SEC, can be found at www.commas.devphase.io. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.