Mert: It’s College Savings Month — what are you waiting for?

Martha Kortiak Mert

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As the cost of college goes up, many families feel overwhelmed at the thought of affording higher education. But there’s no better time than College Savings Month to take charge of the future.

Whether you’re just getting started or looking to fine-tune your savings strategy, September is the perfect time to research, explore and make a plan for your child’s future education costs.

Is college even worthwhile these days?

A study by Pew Research this year found that only one in four U.S. adults believe it’s “extremely or very important” to have a four-year college degree to get a well-paying job. And 29% of respondents feel that the cost of college is “not worth it.”

But the facts show that a college degree remains an important gateway to a more prosperous future. According to the U.S. Bureau of Labor Statistics, the median earnings of those with a bachelor’s degree are 66% higher than those with only a high school diploma. The difference can add up to hundreds of thousands of dollars over the course of a lifetime.

Why the disconnect? We all know the cost of college is high. Worse still, student debt has ballooned to $1.59 trillion dollars as many students borrowed to cover these ever-increasing costs. There are many borrowers who feel they’ll never dig out of the debt and are understandably frustrated and angry.

Rather than being discouraged, parents can take steps now to learn, plan, and prepare. Here’s how you can start.

Understand college costs to help set goals and start saving

College costs can vary widely. For 2023-24, tuition, fees, and room and board for the school year averaged $24,030 for an in-state public institution and $56,190 for a nonprofit private one.

So how much will college cost when your child is 18? You can find college savings calculators online that project the costs for different types of institutions. Estimating the future cost will help you set a goal and start the saving process.

Be aware that the published or “sticker price” of a college or university is usually higher than the “net price” most families pay after factoring in financial aid packages. According to the U.S. Department of Education, 87% of full-time undergraduate students attending four-year institutions receive federal financial aid.

Maximize your savings

Consider saving with a 529 plan. 529 plans are tax-advantaged investment accounts that offer unique benefits. You choose how to invest the money you contribute; your earnings grow tax-deferred and your withdrawals are tax-free at the federal level if they are spent on qualified education expenses.

These expenses include tuition and fees, room and board, books and supplies, and more. Funds can also be spent on technical and trade schools and apprenticeship programs. And if you end up with unused money in your 529 plan, you may even be able transfer up to $35,000 to the beneficiary’s Roth IRA without incurring federal tax or penalties.

There are over 50 direct-sold 529 plans offered by 49 states plus the District of Columbia. These are plans that consumers can open themselves online without a financial adviser. You don’t have to use the plan offered by your state, though there may be an advantage to doing so. Over 30 states provide a tax deduction or credit on state income taxes for contributions to a 529 plan. Arizona taxpayers may be able to claim up to $4,000 in annual contributions to any 529 plan when filing their Arizona state taxes.

Saving early and often for college is the best strategy for reaching your goal, thanks to the power of compounding returns. If you start saving $100 per month, you would contribute $21,600 over 18 years, but with 7% annual growth you could end up with a total of $43,300 in your account. You’ve doubled your money and that extra $21,700 in earnings could be withdrawn tax-free to pay for college.

It’s also important to remember that you don’t have to save for 100% of the cost. Any amount you save can help your child reach their college dream and avoid burdensome student debt. And you don’t have to do it alone. Friends and family can make gifts to your child’s 529 account along the way for birthdays, holidays and other milestones. Grandparents can even open their own 529 plans for their grandchildren.

These are key steps you can take to become a better-informed consumer when it comes to college. If you haven’t started saving for college yet, this College Savings Month is a great time to commit to this important goal.

If you’re already saving, don’t forget to check in on your progress and adjust your contributions to make sure you stay on track.

Editor’s note: Martha Kortiak Mert is chief operating officer at savingforcollege.com, the leading free online resource for parents to learn about and compare 529 college savings plans. Reader reactions, pro or con, are welcomed at AzOpinions@iniusa.org.