Saving Money

Saving money is the primary way to prepare for the costs of college. Setting aside a certain amount every month will help build up a fund for college. If you begin saving early, the amount you have to set aside each month will be smaller.

In order to set up a savings schedule, you'll need to think about where you might attend college, how much that type of college might cost, and how much you can afford to save. Keep in mind that colleges of the same type have a range of costs and you may be able to attend one that is less expensive. You can also pay part of the costs while you are attending school. In addition, you may also be able to meet some of the costs of college by working during the school year or during the summer. Finally, some federal, state, or other student financial aid may be available, including loans.

You will also want to think about what kind of savings instrument to use or what kind of investment to make. By putting your money in some kind of savings instrument or investment, you can set aside small amounts of money regularly and the money will earn interest or dividends. Interest refers to the amount that your money earns when it is kept in a savings instrument. Dividends are payments of part of a company's earnings to people who hold stock in the company.

A savings instrument has an "interest rate" associated with it; this refers to the rate at which the money in the instrument increases during a certain period of time. Principal refers to the face value or the amount of money you place in the savings instrument on which the interest is earned.

Every type of savings or investment has some risk that the return will be less than needed or expected. Federally insured savings accounts are safe and guaranteed up to $100,000 by the U.S. Government. However, they may have lower interest rates, making it harder to save large amounts of money for college. Bonds and stocks often have higher returns than savings accounts or EE savings bonds but are riskier. You can reduce the risks of these kinds of investments by starting to save early. The earlier you begin, the less money you will have to put aside each month and the more total savings you will accumulate. You should talk with your banker or other financial professional about different savings and investment choices. You might also talk with a friend or relative who understands these choices.

When deciding which type of savings or investment is right for you and your family, you should consider four features:

Risk: The danger that the money you set aside could be worth less in the future.

Return: The amount of money you earn on the savings instrument or investment through interest or dividends.

Liquidity: How quickly you can gain access to the money in the instrument or investment.

Time Frame: The number of years you will need to save or invest.

When you select one or more savings instruments or investments, you should balance these factors by minimizing the risk while maximizing the return on your money. You will also want to be sure that you will be able to access the money at the time you need to pay for your education.

If you start early enough, you may feel confident about making some long-term investments. Some investments are riskier than others but can help you earn more money over time. You can get more information on these and other savings instruments at local banks.

Don't forget that you won't necessarily have to save for the entire cost of college. The following section tells about student financial aid for which you might qualify and other ways to keep college costs down.

Financial Aid

Financial aid can help you meet college costs. Every year millions of students apply for and receive financial aid. In fact, almost one-half of all students who go on for more education after high school receive financial aid of some kind.

There are three main types of financial assistance available to qualified students at the college level:

1. Grants and Scholarships

2. Loans

3. Work-Study.

Grants and Scholarships

Grants and scholarships provide aid that does not have to be repaid. However, some require that recipients maintain certain grade levels or take certain courses.

Loans

Loans are another type of financial aid and are available to both students and parents. Like a car loan or a mortgage for a house, an education loan must eventually be repaid. Often, payments do not begin until the student finishes school, and the interest rate on education loans is commonly lower than for other types of loans. For students with no established credit record, it is usually easier to get student loans than other kinds of loans.

There are many different kinds of education loans. Before taking out any loan, be sure to ask the following kinds of questions:

  What are the exact provisions of the loan?

  What is the interest rate?

  Exactly how much has to be paid in interest?

  What will the monthly payments be?

  When will the monthly payments begin?

  How long will the monthly payments last?

  Is there a grace period for paying back the loan?

  What happens if you miss one of the monthly payments?

In all cases, a loan taken to pay for a college education must be repaid, whether or not you finish school or get a job after graduation. Failure to repay a student loan can ruin your credit rating. This is an important reason to consider a college's graduation and job placement rates when you choose a school.

Work-Study Programs

Many students work during the summer or part time during the school year to help pay for college. Although many obtain jobs on their own, many colleges also offer work-study programs to their students. A work-study job is often part of a student's financial aid package. The jobs are usually on campus and the money earned is used to pay for tuition or other college charges.

The types of financial aid discussed above can be merit-based, need-based, or a combination of merit-based and need-based.

Merit-based Financial Aid

Merit-based assistance, usually in the form of scholarships or grants, is given to students who meet requirements not related to financial needs. For example, a merit scholarship may be given to a student who has done well in high school or one who displays artistic or athletic talent. Most merit-based aid is awarded on the basis of academic performance or potential.

Need-based Financial Aid

Need-based means that the amount of aid a student can receive depends on the cost of the college and on his or her family's ability to pay these costs. Most financial aid is need-based and is available to qualified students.

Other Ways to Keep the Cost of College Down:

Serve in AmeriCorps

AmeriCorps is a domestic service organization in which thousands of young men and women are working in community service projects around the country in exchange for a living allowance averaging $7,500 per year; health care; child care when needed; and an education award of around $5,000 per year for paying back a student loan or for financing postsecondary education. Under some circumstances a person can serve part time and receive an education award of sround $2,500 per year.

AmeriCorps projects serve communities throughout the country. All meet at least one of four national priorities: (1) education; (2) public safety; (3) human needs; and (4) the environment. For example, AmeriCorps members teach state-of-the-art computer skills to teenagers, tutor grade-school children in basic reading, or organize innovative after-school programs in some of the education projects. AmeriCorps members in environmental projects clean up urban streams and inland waterways, monitor dangerous trends in air quality, or test-start city-wide recycling programs.

There are many different points in a person's educational career when participation in AmeriCorps is an option: right after high school; during or after college; and during or after graduate school or occupational training. AmeriCorps members are recruited locally and nationally. To find out more about AmeriCorps, call the AmeriCorps Hotline free of charge at 1-800-94-ACORPS (1-800-942-2677).

Take Advanced Placement (AP) Courses and Exams in High School

Many high schools offer Advanced Placement (AP) courses and exams. AP courses are college-level courses that help students prepare for college-level work. After taking AP courses, students can take AP exams offered in the same subjects as the AP courses. If students score a grade of 3 or higher on an AP exam, they can often receive college credit. Students with high grades on AP exams in many different subjects are sometimes granted a full year of course credit at the colleges where they enroll. The receipt of course credit can result in savings in college costs. These savings can be quite large if it means that a student is able to enter into a college as a second-year student; such a student might save the cost of tuition and fees for a whole year of college.

However, not all colleges and universities give college credit for a grade of 3 or higher on an AP exam. Contact your high school to find out if AP courses and exams are offered. Write to the admissions office of the colleges that are of interest to you to find out if they give credit for an AP exam grade of 3 or higher.

Participate in a Career-Focused Educational Program such as "Tech-Prep" or "School-to-Career"

As discussed earlier, some high schools offer career-focused educational programs that provide students with a set of high school courses that are formally linked to courses offered at local community or technical colleges. These "tech-prep" or "school-to-career" programs, as they are often called, offer students the opportunity to go through a sequence of career-focused courses in high school that prepares them for an apprenticeship program or for a specialized sequence of college courses in a particular occupational field. Thus, students who master certain technical and occupational skills and knowledge in high school do not need to repeat the same courses when they enter college or an apprenticeship.

In some of these programs, students who take the specialized sequence of courses in high school can sometimes be awarded college credit or advanced standing in the occupational program at the college level. This can save students time and money. It also means that students can gain access to more advanced college courses much earlier in their college careers. To find out if such career-focused programs exist in your community, ask your guidance counselor or teacher.

Enroll in a Two-Year College; Then Transfer to a Four-Year College

Local community colleges are usually the least expensive. In addition to charging low tuition, usually it is possible to save money by having the student live at home and commute to campus. After completing an associate's degree or certificate in a two-year college, students often can transfer to a four-year college and work toward a bachelor's degree. If you choose this route, you need to take courses in the two-year college that will count towards a bachelor's degree. Certain community college courses may not be transferable to a four-year institution. Community college admissions officers can explain transfer terms and opportunities.

Work Part Time

Some students choose to work part time and attend college part time. If you wish to do this, you should make sure that work, classes, and time for studying do not conflict. Some institutions offer programs that enable students to combine work and classes. Although going to school part time is a good option for many students, it usually takes longer for part-time students to earn their degrees.

Take Advantage of Armed Forces Education Programs

The armed forces offer educational programs during or after active duty. If you prefer to work toward a college degree immediately after high school, attending one of the military academies or attending a civilian school and enrolling in the Reserve Officers Training Corps (ROTC) program are options. If you want to join the armed forces before attending college full time, you can attend college after military service by taking advantage of the Montgomery GI Bill or by obtaining college credit for some of the military training you will receive.

Military Academies

Each branch of the military, with the exception of the Marine Corps, has its own academy - a four-year college that offers a bachelor's degree and a commission in the military upon graduation. The military academies are highly competitive and are tuition-free to students who are admitted. The three main military academies are: U.S. Military Academy, located in West Point, New York; U.S. Naval Academy, located in Annapolis, Maryland; and U.S. Air Force Academy, located in Colorado Springs, Colorado.

Other Academies

Two other academies operate on the same model as the military academies, with subsidized tuition in return for service. They are: U.S. Coast Guard Academy, located in New London, Connecticut; and U.S. Merchant Marine Academy, located in Kings Point, New York.

ROTC

In the ROTC scholarship program, the military covers most of the cost of tuition, fees, and textbooks and provides a monthly allowance. Scholarship recipients participate in summer training while in college and fulfill a service commitment after college.

The Montgomery GI Bill

This bill provides financial support for people who wish to pursue a college education after serving in the military.

Other Ways To Get a College Education in the Armed Forces

Most branches of the military offer some kind of tuition assistance program that enables members to take college courses at civilian colleges during their off-duty hours while on active duty. In addition, military training while on active duty can sometimes count toward college credit. All branches of the military offer training in various technical and vocational areas, and military enrollees can often obtain college credit for some of this training.

The National Guard and the Reserves offer the same kind of educational benefits as those available to people on Active Duty.