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How to catch up on college savings

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You want a bright future for your children. Helping them pay for a college education is one way to help them achieve that. In addition to furthering their studies, such a gift can help them sidestep the burden of student loan debt, which stunts so many young adults' financial lives.

While it helps to save over many years, sometimes that's not possible. Time seems to get away. And families might prioritize more immediate needs, like home repairs or medical bills. If you haven't saved as much as you'd hoped, it doesn't mean your child's education dreams are out of reach—you just need to think about how to catch up on college savings.

Is it too late to start saving for college? Never. But some strategies work better than others depending on how much time you have to close the gap. Consider these specific ways to make the most of your savings, meaningfully reduce your child's potential expenses, and find any additional money to put toward college.

Focus on education-specific savings accounts

Saving money through dedicated college savings and certain other custodial accounts is the simplest and quickest way to grow your balance. These accounts also tend to be the most stable, which is important if you don't have a lot of time.

The primary plans designed for education are Coverdell education savings accounts and 529 college savings and prepaid tuition plans. Their benefits include:

  • Growth potential. The money can be invested in a variety of ways that you choose. In general, the earnings potential of market investments is better than deposit accounts, although you will have a risk of loss.
  • Tax advantages. The growth and withdrawals are tax-free as long as the money is used for qualified educational expenses. Also, contributors may be able to take a state income tax deduction.
  • Group effort. Anyone can contribute to Coverdells and 529s up to the account's specific limit. That means you can grow your balance just by letting friends and family know how much it would mean to you if they made cash gifts to it instead of buying presents.

Aside from these, you may want to check out custodial accounts to grow your savings for your child's future use. A custodial Roth IRA has provisions similar to 529s that allow the balance to pay for qualified educational expenses without incurring taxes or penalties. And UGMA and UTMA accounts, acronyms for the Uniform Gift and Uniform Transfers to Minors Acts, allow you to manage irrevocable assets for the sole benefit of your child when they become a legal adult.

Seek out all available scholarships, grants & other student financial aid

There are countless student scholarships—not only for academics and sports, but also talent, civic service, hobbies, identity and more. It pays to look at all possible scholarship opportunities—including any offered by local organizations your child is involved in—well before application time, so you'll know what they're looking for. Not to mention, community service requirements or organization involvement can give your child motivation to build up their résumé. Encourage your child to line up potential scholarships early to stay ahead of deadlines—and apply for as many as possible before each new school year.

To get federal government grants and need-based financial aid determinations, you'll want to watch for the opening date of the Free Application for Federal Student Aid, or FAFSA, your student’s senior year of high school. The government and any school you choose use this document to determine your child's Student Aid Index. The earlier you apply, the earlier you'll know how much aid you're eligible for. You'll also get an estimate from the school of all expected costs.

Identifying aid, grants and scholarships early can help you lay out a clear strategy for how you'll pay your child's college bill.

How much do you need to save for college?

Get maximum value out of your child's academic path

Free money from scholarships and grants isn't the only way to reduce your college sticker price. If your child has any opportunities to gain college credit before going to college, encourage them to go for it. That's one fewer class you have to pay for—and it can help ensure your child will graduate on time by knocking out a requirement or two early.

Two ways to do this are:

  1. Enroll in advanced placement (AP) classes. High school students may be able to gain college credit by completing certain in-class grade requirements and earning a high score on the College Board's AP tests.
  2. Take dual-credit courses. Many high schools offer a few classes, such as algebra, biology or world history, that are equivalent to general education courses for college freshmen. Students are graded at a college level, and those with passing grades can earn transferrable credits.

Another way to make college savings for your child go further is to determine how important it is for them to take every class at their dream school. Many required courses are transferrable between institutions, so if they can complete some terms at a less-expensive school, you may end up with a lower total college bill.

For instance, they can:

  • Start at a community college. Your child can complete a semester or a couple of years and then transfer to their destination school as an upperclassman. The degree they'll earn is worth the same regardless of whether all four years were spent there.
  • Take summer classes at a local school. Your child may be able to do a night class or mini-session that will earn them course credits. However, you'll want to make sure ahead of time that credits are transferrable and that your main school doesn't have consecutive-term requirements that would be violated.

Take up a part-time job or a cut down your household budget

If you or your child are able, you could consider taking on additional part-time or gig work now so the income can be put toward college expenses. It may not be easy to do, but if you're up against time, you may have just a few years to sock away funds rather than take out student loans that carry the burden of interest charges. You might want to put this "extra" income into your 529 plan, Coverdell savings, custodial account or another savings instrument that's clearly separated from your usual income.

It's surely already on your mind, but it also never hurts to review your family's budget to make sure it's aligned with your college funding goals. You may find you have a monthly gym membership no one's using that could be funneled to a dedicated savings account. Even small moves and trimming can add up to make the most of the time you do have available.

Consider taking a job that offers tuition assistance

Although this option won't work for everyone, it's possible your child could find work with an employer that will cover some, or even all, of their education expenses. Many large employers like Amazon, Walmart and Starbucks, as well as local businesses with a vested interest in developing talent within the community, offer tuition reimbursement or paid education expenses as a benefit for certain part- and full-time employees.

Approach this with a lot of thoughtfulness, however. There may be requirements to continue working for the company for a number of years, including while attending college. Also, some programs have low caps on the amount you'll receive or limit the institutions you can apply it toward, which may not align with your student's plans.

Avoid borrowing against yourself whenever possible

It may be tempting to dip into retirement savings accounts, like an IRA, or to take out a home equity loan to help foot your child’s tuition bill. But options like these don’t come without risks. Using the equity in your home as collateral can put you in jeopardy of losing your house. And draining money from your nest egg can increase your chance of potentially running out of money in retirement—the most-cited fear among retirees.1 While it’s understandable to do what you can to avoid taking out student loans, keep in mind: You can borrow money for college, but not for retirement. A financial advisor can help you evaluate your best options and resources before you make bold moves.

The bottom line

If you've wanted to fund your child's education but find yourself a bit behind on savings, there are several ways you can catch up. Be realistic with your expectations. If you're really far behind, you may not be able to give your child as much as you'd like, but there are still opportunities to improve your outlook:

  • Put away whatever you can in tax-advantaged college savings and other accounts.
  • Reduce college expenses as much as possible with scholarships, grants and early or transferrable credits.
  • Explore outside resources like part-time work, employer-related tuition coverage and gifts from friends and family.
  • Try to avoid borrowing against things like your retirement savings or home equity.

The sooner you start saving, the better off you'll be. For more advice, consider meeting with a Thrivent financial advisor, who can help you create an individualized plan that maximizes your finances to meet your goals.

 1 GOBankingRates study. December 2022.

Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

Offered through a brokerage arrangement with Thrivent Investment Management Inc. 529 college savings plans are not guaranteed or insured by the FDIC and may lose value.

Consider the investment objectives, risks, charges, and expenses associated before investing. Read the issuers official statement carefully for additional information before investing.

Investigate possible state tax benefits that may be available based on the state sponsor of the plan, the residency of the account owner, and the account beneficiary. Consult with a tax professional to analyze all tax implications prior to investing.