How to Finance College
It’s back-to-school season
What should you be doing right now?
Now is a good time to meet with your guidance counselor and map out your academic strategy. What classes should you take? What are you interested in exploring? If you focus now, you’ll be a more competitive student when it comes time to apply to colleges.
On the other hand, college expenses keep going up every year. Even if you or your parents have established a savings plan for your education, it may not be enough. This section of Money Matters for Students is a guide through your options when planning for an education.
Not sure where to start? Try our Battle Plan. It’s an interactive road map to the things you need to do.
If it’s still several years before you’re ready for college, Savings is for you. It explains how to open a savings account and get started saving for school. It also gives you some ideas of how to come up with the money for school; even if your parents aren’t saving for you.
Not enough savings? That’s where Financial Aid comes in. We’ll explore the various kinds of financial aid from scholarships and grants to student loans and work study. We’ll also blast apart some myths about financial aid and give you some hints how to get it, no matter what your parents’ income bracket is.
Starting A Savings Plan
No matter how close you are to entering college, it’s never too late to start saving. Even a few hundred dollars put aside from a summer job the summer before you start school can make a big difference in your first year.
Because even if you get the greatest financial aid package in the world, you’re still going to have incidental expenses like books and phys ed uniforms that aren’t covered. And then there’s life’s little pleasures: like that ticket to the homecoming game or a pizza after a movie. Savings help you get by.
If you’re years away from entering college, now’s the time to start a saving plan. If you start with small, regular, monthly contributions, you will have a substantial amount put aside by the time you graduate.
Getting The Most From Your Savings
The trick to making your savings mount up is simple. Make regular contributions to your savings account. Even if they’re small. In fact, 12 small deposits of $50 a month will give you more money in the end than one big deposit of $600 a year. Here’s why:
What makes your savings grow is interest. In most savings accounts, you start earning interest from the day you make your deposit. If you deposit $50 in January, you’ll earn interest on that $50 from January through December. The same goes for the $50 you deposit in February. And so on.
If, on the other hand, you wait until December and then deposit $600, you haven’t earned a penny between the previous January and December when you make the deposit.
Picking A Savings Vehicle
Many banks have special savings programs just for students. Look into them.
At first, all you may qualify for is a regular savings account. Go for it! But keep an eye on how much you have in your account. A regular savings account is the lowest interest of all types of saving vehicles. And your bank has a lot of ways you can earn higher interest, once you have a balance of $1000 or more.
Higher interest savings vehicles mean your money earns more money. That means that when you’re ready to go to college, you’ll have more saved. Higher interest savings vehicles also lock your money in for a period of time. Which shouldn’t be a problem for you, because you’re putting the money away for college and won’t need it right now, anyway.
Some of these are:
Certificates of Deposit (CD’s)
You literally “buy” one of these for a certain amount of time, known as the CD’s term. At the end of the term, the bank repays you the money, or you can roll it over into another CD. It also pays interest, which it may in one of two ways. It can pay it in regular installments through the life of the CD, or pay it in one lump sum in the end.
The general rule with interest in CD’s is the longer the term, the higher the interest. But there’s something else you need to take into consideration. During periods when everyone is giving low interest rates, like during a recession, you don’t want to get locked into CD at those lower rates for too long. Because interest rates might start going up, and you’ll be stuck earning less than you could with a different CD.
Money Market Accounts
A Money Market Account is a higher interest, checkable savings account. That means you can write checks against your savings. Usually the bank limits the number of checks you can write per month or year and may also say that checks need to be a certain minimum amount. You must keep a minimum balance in a Money Market Account.
Premiere-type Savings Accounts
Some financial institutions offer other types of savings accounts that feature the bank’s highest interest rates, but require a high minimum balance.
Mutual Funds are not savings, but investments. Some banks offer them as part of their investment services. They often allow you to increase your savings at a rate higher than a savings account, but you also encounter risk. This is because with a mutual fund you are participating in the stock market. You are pooling your money with a lot of other people’s to buy a large number of stocks from a large number of corporations. If the stock market moves up, chances are, your investment will be worth more. But if it plunges, you could lose a lot, too.
Two Years Before College
Financial aid officers will be studying the year before you start college to determine how needy you are. If you show substantial savings, they will consider you less needy.
Don’t worry and don’t let this slow down your savings program. Instead, go to the Looking More Needy section and follow the advice on how to “hide” your savings.