The college graduate’s average student loan debt currently hovers between $30,000 and $40,000. That is a daunting amount for anyone to deal with immediately after walking across a stage. Luckily, there are ways to more efficiently pay off student loans. Plus, parents and grandparents can help lower this burden for future college students by saving wisely. Here are ways to save for (or pay off) college at every phase of life.
At this stage in life, you already have student loan payments to contend with, while you start or search for your first career. This can understandably be overwhelming. However, here are some strategies to lower your debt and lead a better financial life:
- Pay more than the minimum payment each month.
- Make an extra payment every quarter.
- Make a lump-sum payment when you receive a tax refund, bonus, etc.
- Take the student loan interest deduction.
- Refinance your student loans.
As a parent, you undoubtedly want to make things easier on your child(ren). You can do this by setting up a 529 college savings plan. The money in a 529 plan can then be used to pay for the college expenses of the beneficiary tax-free.
However, while starting a college fund for your child is a great goal, there are other things to consider — for one, your own money goals. Saving money for your own retirement should always come first. Before contributing to a 529, you should pay off your own debt, invest in your retirement plans and set up an emergency fund.
Investing in a college fund is ideal, but it’s also hard to predict the exact cost of college in the future. The current rate of inflation for university tuition is around 6.5 percent, and if this persists, the average cost of a college education in 18 years is going to be astronomical by today’s standards. While there are great tools available to save for college, it is really hard to predict how much you should be saving. Your retirement should always come first.
Like parents, grandparents can also contribute to a family-owned 529 plan. A grandparent can also wait until graduation to gift their grandchild with money to help pay off their student loans. While this gift won’t affect the grandchild’s eligibility for financial aid throughout their college career, it also won’t receive the tax and estate-planning benefits of contributions to a 529 plan.
For more advice on paying or saving for college, feel free to contact Insight Wealth Group.