The Digerati Life is a personal finance site and blog that you can visit for tips, stories, and resources on money management, investing, and debt management.
I recently interviewed the owner of The Digerati Life to see if she had any tips on saving for higher education. Here's what she had to say:
1. What are some of the best ways students can save for higher education?
I would strongly recommend that parents and family members think about contributing to an educational savings fund for their child. Each individual can gift anyone $13,000 tax free for the year. So why not take advantage of this gift tax exclusion? Also, you can set up a 529 savings plan for this purpose. The 529 account is different from other educational savings plans because your funds here have tax benefits. You may want to get more information on this type of account in my post on how to open a 529 college savings account. There are also other ways to save, such as through a Coverdell Educational Savings Account, a Uniform Gift to Minors Act account, a Uniform Transfer To Minors Act account, and gift trusts, but my favorite is via the 529 account. For more resources on this, check out SavingForCollege.com.
2. How soon should students start saving?
The sooner you save the better. But there may be competing savings goals that you're faced with. I would say that as soon as a child is born, you should think about saving for their education. This will give your funds time to grow and to take advantage of the power of compounding. When you start early, you can open a Coverdell Education Savings account with a top broker like Scottrade, and invest in mutual funds and equities for growth. Make sure that you take into consideration the length of time you're going to keep your funds in growth investments in order to properly manage the risks you take with the funds you'll need at some point.
3. Should students ask their family members for help?
Family members are a great source of support and resources. But different families also have different dynamics. If you're a student with helpful and generous family members, then you may want to suggest some tax beneficial ways to help you save for college. There are many ways for families to help a student that would allow them to pool funds for educational purposes. Family members can also set up trust funds for their children. But if you'd prefer to get a personal loan without having to borrow from family, you can do so through a peer to peer lending site like Lending Club instead. Such a lending network can help you obtain personal loans that may cover at least some of your educational needs.
4. Are there any trusty, short-term investments that students can make to help their savings grow?
Some short term investments that students and their parents can think of investing in at some point include 3 to 5 year CDs, which hopefully yield better than the national average rates. Check out some high yield CDs from Sallie Mae, or even better, check out their high yield interest savings account. They are partnered with Upromise, which has a leading college savings program that allows you to fund your 529 savings accounts with ease, through extra boosts and cash rewards from your credit cards. Another great option is to set up savings goals through SmartyPig, which has a savings account, prepaid rewards card and built in methods to help you save harder towards your goals. You can also opt for traditional savings bonds as well.
5. Do you know of any additional online resources that can help students save for higher education?
I mentioned the site SavingForCollege.com earlier, which is a fantastic resource for anyone who is looking to fund their education. You can also look at a free personal finance budgeting tool like Mint.com to help you track your cash flow and budgeting activities. And check out Upromise.com for more suggestions on how to build up your savings for your child's education.
6. Do you have any advice for students who haven't been able to save up enough money? Should they look for scholarships, loans, or try to work their way through school?
There are many ways to get the funding needed to pay for school. I will strongly advise anyone to look at all options, and also check the ramifications of pursuing one strategy versus another. For example, you may want to look into a student's eligibility for student loans or acquiring financial aid and make sure you are taking into account your financial situation when applying for aid. Are you doing anything that may trigger a potentially negative decision against your federal loan application? Carefully study the regulations that help you qualify for aid. I also believe that working your way through school builds character. It's certainly one way to teach a person time management and multi-tasking skills. While it would be great to be able to focus on one's studies 100%, it may not be doable for some students. There's nothing wrong with working and getting an education at the same time.