How to plan for college costs: a guide for parents

• College expenses are rising, so it is important to plan early and understand future projections.
• Financial aid, including grants, loans and merit-based scholarships, can help mitigate college expenses. 
• Starting early with savings plans like 529 plans, Coverdell education savings accounts or ordinary savings accounts can significantly impact college affordability. Each option has its advantages, such as tax benefits and flexibility, but starting as soon as possible maximizes growth potential through compound interest.

"How can I ensure my kids can afford to go to college?"

With the rising costs of higher education, planning for your children’s college expenses can feel overwhelming, but with a thoughtful strategy and experienced guidance, you can build a plan that helps secure their future without compromising yours.

At Equitable Advisors, we believe the key to success is starting early, staying disciplined and leveraging tax-advantaged savings tools to maximize your accumulation potential. Here are some steps to help you get started:

Understand the costs

College tuition and fees have risen significantly over the years, and future costs are projected to climb even higher.

Estimate financial aid

While college costs may seem daunting, many students receive financial aid to help offset expenses. Aid comes in several forms:

• Grants: need-based awards that don’t require repayment.
• Loans: borrowed funds that must be repaid, often with interest.
• Merit-based aid: scholarships awarded for academic achievements, athletic performance or artistic talents.
  

Plan for the balance

When financial aid doesn’t cover the full cost of college, families are responsible for any remaining expenses. Fortunately, saving early and strategically can make a significant difference. Your financial professional can help you explore several effective savings options, including:

529 plans

• A 529 plan is a tax-advantaged investment account designed specifically for education expenses. 
• Contributions are made with after-tax dollars, but the account grows tax-free.
• Withdrawals for qualified expenses—such as tuition, room, board and books—are also tax-free.
• Funds can be used for high school or college expenses, and beneficiaries can be changed if needed.
• State tax benefits: Some states offer additional tax breaks for contributions.

Coverdell education savings accounts

• Covered accounts offer tax advantages, but come with stricter limits. You can contribute up to $2,000 per year, per account, but funds must be used by the beneficiary’s 30th birthday to avoid penalties. 
• While these accounts may work for some families, they’re less flexible than 529 plans.

Ordinary savings or investment accounts

If you prefer simplicity, you can save for college in traditional bank or brokerage accounts. While these accounts lack tax advantages, they offer flexibility in how funds are used.

Start early

No matter which savings approach you choose, the sooner you start, the better. Beginning when your child is born allows you to take advantage of compound growth, turning modest monthly contributions into significant savings over time.

Your financial professional can help you assess your goals, timeline and risk tolerance to create a strategy that works for your family.