It's no secret that college costs are consistently rising. And as students and their families prepare to undertake the financial responsibility that comes with a college education, they must be resourceful in paying for it.
Funds for college usually come from a mix of sources. Parents can contribute to college savings accounts, which may or may not cover a sizeable portion of college expenses. Students often work during their college years to cover at least some costs. If possible, they can use financial aid or scholarships to help. Finally, college enrollees frequently take out student loans, either as a main source of funding or to supplement other sources.
Borrowers of student loans generally have the intention of using future income to pay off their loans. Paying off this debt usually takes many years, and can amount to a substantial expense over the life of the loans. To help minimize the burden of student debt, it is wise to plan ahead for college savings- the earlier, the better, and to only borrow what you need.
Investing in a 529 plan Every state offers at least one 529 plan, which is an education savings plan operated by a state or educational institution to help families prepare for future college costs. There are two basic types of 529 plans:
- Savings plans work much like a 401(k) by investing your contributions in mutual funds or similar investments.
- Prepaid plans let you pre-pay all or part of the costs of an in-state public college education - commonly marketed as "paying today's tuition rates for tomorrow's education." These plans may offer significant tax breaks as a means to assist with saving for the important goal of education, so it makes sense to consult your tax professional before making a commitment.
A solid return on your savings If there are only a few years left until college begins and you haven't yet begun a long-term savings plan like a 529, Certificates of Deposit (CDs) or money market accounts may be good savings options, letting you earn higher rates of interest than with traditional savings accounts while minimizing the need for student loans. Look for competitive rates, such as those offered by Ally Bank.
Your funds at Ally Bank are FDIC-insured to the maximum allowable by law. There's no minimum balance to open our accounts, and require no monthly maintenance fees. Some CDs, however, may incur a penalty should you decide to make an early withdrawal. The Ally No Penalty CD provides a notable exception and provides yet another way to fund education while taking steps to make student loans less of a burden.
In any case, Ally Bank compounds interest daily on all accounts to help maximize your return, while also providing live, 24/7 customer care via email, chat and phone in case you ever need to speak with someone about your transactions.
With the goal of a college education ahead, any steps you take to plan ahead may be beneficial. For more options, visit Allybank.com or speak with live, 24/7 customer service at 877-247-ALLY (2559).