College Savings Tips
While every student is different, here are some of the basics you need to know when it comes to saving for college. The best thing you can do as a student is make sure you discuss with your parents what the plans are so you have an understanding of how much you can afford. You should also ask them how you can contribute to any savings and where you should be depositing your money if so.
Popular College Savings Accounts
Some of the main ways your parents may be saving for your education are:
529 Plans
- A tax-advantaged savings account set up by parents for their child
- Withdrawals can only be used for qualified education expenses (tuition, books, etc.)
- Cannot be used for everyday living expenses (groceries, haircuts, etc.)
- Earnings based on market performance of investments (mutual funds)
- Most offer age-based investment options
- Best started when the individual is fairly young
Custodial Accounts
- Savings account started by parents but in the child’s name
- Important considerations:
- Money legally belongs to the child
- Amounts above $1,000 are taxable
- Taxes must be filed for the account
IRA Accounts
- Individual Retirement Account
- Government allows one-time withdrawal of $10,000 for qualified education expenses
- Not recommended to tap into retirement accounts for education costs
- Some parents use a portion of IRA savings while keeping bulk in other accounts
How Should I Begin Saving Money?
It may not seem like you can contribute much to your tuition expenses with a part-time job, but let’s look at an example of how your money can add up:
Example Scenario
- Georgia minimum wage: $5.15 per hour
- Starting age: 14
- Work restrictions for ages 14-15:
- 18 hours during school week
- 8 hours on non-school day
Potential Earnings
If a student:
- Started working at age 14 in January 2016
- Earned $5.25 per hour
- Worked 3 hours each school night
- Worked 3 hours on Sunday
- Worked 8 hours on Saturday
- Total weekly hours: 26 during school year
Annual Savings Potential
- During school year: Up to $4,000
- Summer work (full-time): Additional $2,000
- Total annual savings: $6,000
Long-term Impact
- Saving $6,000 annually for all four years of high school could cover:
- One year of in-state tuition
- Even more if living at home rather than on campus
Important Considerations
- This is an example scenario; not every student can work these hours
- Interest rates work both ways:
- Savings grow with interest over four years
- Loans accrue interest, increasing total debt
- Even partial savings can help reduce post-graduation debt
Do College Savings Affect Financial Aid?
Yes, but not enough to make a significant difference. Under current federal formulas:
- Students must contribute 20% of their assets to college costs each year
- Parents/guardians contribute 5.6%
Recommendations
- Parents typically handle the bulk of college saving
- Students are encouraged to:
- Open their own savings account
- Start saving from part-time jobs early
- Note: Student earnings usually don’t significantly impact financial aid eligibility
For more information on Financial Aid, check out our comprehensive guide on understanding and maximizing your financial aid opportunities.