College Saving

Saving your Way through College

    While most people associate the college experience with accumulating debt through student loans, financial experts recommend that saving some part of your income should be a strategy employed by all students. You cannot count on having a job as soon as your graduate, so a modest saving plan of 5 to 10% of your income could provide a much needed safety net.

    How could a student afford to set aside part of his income? Its is surprisingly easy for many students. Surveys of college student budgets reveal countless expenditures that are really unnecessary. Designer jeans, top-notch computers, dining out, and cell phones are just a few of the purchases that could easily be replaced with cheaper alternatives or eliminated all together. Of course, most students are too busy (or lack the expertise) to research complicated investments, but some of the simplest plans are the best, and entail less risk. Certificates of Deposit (CDs) are a suitable option for many students. Interest rates may be low, but this is a very safe investment and requires little time to set up. There are penalties for early withdrawal, but short terms are available if you are willing to accept a smaller interest rate.

     One of the best college savings plans is the 529 Plan. All income levels are eligible. Anyone can open an account and name whomever they choose as the beneficiary. You do not even have to be related. The account owner also has the option of changing the beneficiary. Withdrawals from the account are tax free, as long as the money is used for educational expenses. If the money is used for some other purpose, the earnings will be taxed and a fine assessed. These are state sponsored accounts, so the details vary across the country. Most allow you to set aside large sums of money, often totaling more than $100,000.

For the more ambitious investor, the stock market is a attractive option. With some effort, stocks can be researched on the Internet, as well as bought and sold, so the expense of a broker is not required. If this seems too risky for you, consider a 401k plan, which will hand much of the decision making process over to a professional.   Maybe the soundest investment a student could make is in paying off his current debt.

    Thankfully, some student loan interest can be defer until graduation. Credit Cards are another story. With rates as high as 30%, paying off those cards can be more profitable in the long run than any stock market success.