How to Pay for College

Planning for college can be daunting, but it doesn’t have to be! There is no “right” way to save and prepare. It’s all about finding what works best for your family and financial situation.

We’re here to help.

Check out the various savings alternatives below, which families often combine to pay for college expenses.

Bank Savings Account

This is a traditional method for growing your child’s savings through regular deposits. Remember that interest rates on these accounts are very low so it will be hard to build wealth beyond what you contribute. Also, the interest earned on bank savings accounts is taxable.

Coverdell Education Savings Accounts

Also known as ESAs, these accounts allow you to save up to $2,000 each year for each child. This is a tax-free account, and the funds don’t have to be used for college. Savings can be used to pay for college or any K-12 expenses. Contributions can be made until your child reaches age 18 and must be spent before the child turns 30.

529 Plan

This tax-free college savings plan offers two types of options: a college savings plan and a pre-paid tuition plan, each with its own requirements, benefits, and limitations. The money can be invested in choosing investment options. Although the 529 Plan has tax advantages, there are penalties for withdrawing funds for a non-eligible college expense or for claiming non-education-related tax credits. The 529 Plan may be subject to the fluctuations that occur in the stock market, meaning there is a greater financial risk.

Stocks and Mutual Funds

These investments are more aggressive ways of growing your child’s college savings. They can increase in value quickly but are subject to changes in the stock market, and there is no guarantee of a payout.

Gerber College Life Plan

This is an individual endowment policy that provides adult life insurance and matures in 10 to 20 years. The money grows over time, without risk. Since you’ll know from the start the amount that your child will receive at the end of the term, planning for college will be easier.

The payout money can be used for funding higher education or for anything else, such as starting a business, technical training, or the down payment for buying a home. In the unthinkable event that you pass away before the policy matures, your child as a beneficiary will receive the full payout amount.

What’s Best for My Family?

Think about what you’re most comfortable with. Are you okay with taking on a little risk, or do you want something stable? Would you like to limit funds to college use only?

Whatever you decide, it’s best to start early. You’re protecting and preparing your child for his or her future in every other way, so it makes sense to take the final step and make sure that your child will be financially prepared as well.

Have questions about your college planning options? We’re here to help.

Please consult with your legal, financial, tax, and/or other professional advisors for advice concerning your situation