For parents, the thought of having to one day pay for your child's major life events can be seriously overwhelming. It's no wonder more and more people are taking a non-traditional path into adulthood. Who can afford to pay for things like college and weddings these days?
It's hard to imagine, but at one point, you could get a college degree for less than the cost of many family vacations today. In 1965, the average price of a bachelor's degree was around $4,500. From there, tuition costs began to gradually climb, and eventually skyrocket. Current rates are nearly $30,000, and by the year 2037, the price tag for an in-state four-year degree is expected to exceed $200,000. Student loans are having a serious impact on so many people's financial futures – affecting their ability to travel, buy a home, start a family, and even save for retirement. Living with such a tremendous load of debt is a huge weight that majority of college graduates just aren't prepared to bear. And many parents are having a tough time saving enough to cover even part of their child's college tuition.
But there is good news for all current and future parents out there! Aside from saying goodbye to your social life for the next couple decades, there are other ways to ease the burden of tuition once your child reaches college age. If you start saving early – around your child's first birthday – you can set yourself and your child up for success and significantly lessen the stress of student loan debt later in life.
Michigan Education Savings Program
Michigan has a great college savings plan called the 529, or Michigan Education Savings Program. In short, you invest your money in mutual funds, so the amount the plan earns depends on overall market performance. The biggest advantage of the 529 is that earnings are free from federal tax. Once the savings plan is started, you and your family and friends can contribute on a regular basis, and the savings will continue to build with zero tax needing to be paid. The one catch to this particular plan is that it can only be used for college tuition or other qualifying school-related expenses. Despite this restriction, the additional funds you can incur over the life of the plan without having to pay tax can add up quickly!
Custodial Accounts
Another option is to open up a Custodial Account for your child. This account is more of a general savings program – it can be used for virtually anything, like putting a down payment on a house, buying a new car, or getting married. Once your child turns 18, he or she will have full access to the account and can use the funds as desired.