Jennifer Supranowicz, also known as Greylock’s “Banker Mom” has a humorous take on the merits of saving early for a child’s education.

“It helps to set them up with the best chance to be financially successful in the future. Remember, someday they may be the ones deciding which nursing home you go into,” she joked.

But seriously, planning for your child’s education is really one of the most important financial decisions you can make.

Banker Mom, whose column regularly appears in the Money Talks quarterly newsletter, sat down with the In the News team to share her story and tips that have worked for her family.

Start Early

Small, regular contributions can accumulate significantly over time thanks to compound interest.

“The very best tip I can give is to start early,” Supranowicz added. “The earlier you begin saving, the more time your money has to grow. My husband and I started as soon as our girls were born.”

UTMA, or Uniform Transfers to Minors Act, accounts, are custodial accounts to help adults save and invest money for a child. The money must remain in the account until the child reaches a certain age (distribution age varies by state), and then it is turned over to the child for any purpose they choose. While UTMAs are not exclusively for educational expenses, they can be very helpful.

“We opened UTMA accounts for each of our three girls and set up small, but automatic deductions from each paycheck to grow the accounts,” said Supranowicz.

How Much Will You Need?

Depending upon your child’s age, it may be impossible to know what their school needs will be, but the Massachusetts Educational Financing Authority has developed an online tool to help you estimate future college costs: https://www.mefa.org/pay/college-cost-projector. This can help you project how much you will need for your child’s education and set a target savings goal. Be sure to consider factors like tuition, books, and living expenses. Having a clear target will help you stay focused and motivated.

Specialized Accounts

Look into specialized savings accounts like 529 plans or Coverdell Education Savings Accounts (ESAs). These accounts offer tax advantages and are specifically designed for education expenses. There are benefits and tradeoffs with each type of account, and a good financial advisor should be able to help you determine the best approach for your needs.

Set It and Forget It

“I encourage people to set up automatic transfers from their paychecks to their education savings account,” Supranowicz said. “It’s like putting your college savings on cruise control and it ensures consistent contributions and reduces the temptation to spend the money elsewhere.”

Scholarships and Grants

As your child gets older, encourage your child to apply for scholarships and grants. These can significantly reduce the amount you need to save and are often based on academic or extracurricular achievements. For example, Greylock offers Community Support Scholarships to area high school students and are based primarily on a student’s community involvement.

A Family Affair

In some cases, grandparents, godparents, or other family members are willing to contribute to your child’s education fund. You may want to encourage gifts toward your child’s education fund as a meaningful way for them to invest in your child’s future.

Get Creative

“Even with all our planning, we still needed to borrow money to pay for our children’s education. We were fortunate enough to be able to borrow money from my 401k plans,” said Supranowicz, of the employer-sponsored retirement savings program. “It was like borrowing from ourselves. We still had to pay it back with interest, but that interest went into our retirement savings.”

This option may not be available with every employer or every 401k program, so please consult your employer.

Many families use a home equity loan or line of credit to help pay for college. If you have a home and have built up some equity, this can be a more affordable option than many student loan programs.

A savings secured loan is another option. This loan allows you to borrow up to the amount you have in savings, and they use that money as collateral to secure your loan. These loans generally charge lower interest rates than unsecured financial aid loans or personal loans. Currently, Greylock offers secured loans as low as 2.05% APR.*

“At one point, we were able to do a savings secured loan. This allowed us to get a more affordable loan and not drain our savings.”

Review and Adjust

Periodically review your savings plan to ensure you are on track. Adjust your contributions as needed to stay aligned with your goals.

By taking these steps, you can help ensure that your child has the financial resources they need to pursue their educational dreams. “Remember, every little bit helps and starting today can make a big difference tomorrow,” she said.

To read Banker Mom’s summer column, click here.

 

*APR = Annual Percentage Rate. Rates shown as low as. Rate accurate as of 9/12/24 and is subject to change.