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Parents: How to Plan for Your Child's College Education

Posted on: October 14, 2021

Your Michigan Bank Highlights What You Need to Know

Child-collegeThe milestones in your child’s life pass quickly. And you’re right there with support, guiding first steps, reviewing homework, attending after-school events, and cheering the walk across the stage for a high school diploma. When it’s time to leave for college, your child looks to you for counsel and financial support.

Our bank in Michigan has compiled an overview to help guide you and your child on the next part of the journey.

Anticipating College Costs

A college education is a significant investment. U.S. News reports tuition for 2021 vary by type of school:

  • Attending a private college in-state costs about $38,185 per school year
  • A public college out of state averages around $22,698 per school year
  • A public college in-state costs about $10,388 per school year

Additional expenses for room and board, books, supplies, travel, and other costs can represent over $11,000 per year, or more than $44,000 over a 4-year program.

Although discussions are happening about reducing college costs and getting more transparent information, historical tuition increases are twice the inflation rate. Prices jump about 8 percent annually, which means tuition could double every 9 years.

Like any financial goal, planning is essential to getting results. Your Michigan bank is here to help you develop a strategy for your child’s college education.

Tactics for Financing College

People pay for college using a variety of sources, such as:

  • Parental support
  • Grants and scholarships
  • Student loans
  • Student income and savings

Child-collegeResearch shows parental support averages 40 percent, loans, grants, and scholarships about 35 percent, with student savings plans and other sources making up the remaining 25 percent.

Popular savings tactics for parents include:

  • 529 savings plans which give investors tax-free returns on the money they save.
  • IRAs (Individual Retirement Accounts) are long-term savings tools. Options allow parents to get tax-free returns on investment (Roth) or grow tax-deferred (Traditional).
  • Certificates of Deposit (CDs) deliver a higher rate of return than regular savings accounts with interest that stays steady over the term of the CD. Laddering several CDs with different maturity dates can help manage cash flow for college payments.

Even if you plan to contribute to your child's college fund, take time to complete the Free Application for Federal Student Aid (FAFSA).

  • FAFSA connects your student to grants, work-study opportunities, and federal loans.

Government student loans are available in 4 formats:

  • Subsidized loans are based on financial need and allow students to defer interest payments.
  • Unsubsidized loans, available regardless of financial need, begin accruing interest as soon as the loan is taken out.
  • PLUS loans help parents pay for expenses not addressed by other types of financial aid.
  • Consolidation loans enable students to combine federal loans into a single payment plan.

Michigan banks also offer student savings accounts to help your child learn good financial habits.

Develop the Right Financing Plan for Your Child’s College Education 

To find financial solutions for your child’s college milestone, connect with the Level One Bank team or visit one of our local branch offices. We’ll craft the strategy that aligns with your goals and your budget.

Higher education isn't just a personal investment. It's a public good that pays off in a more competitive workforce and better-informed and engaged citizens.

-Robert Reich, American Economist

Posted in: Your Money, Your Life

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