How to Send Your Kid to College Without a Loan

from on 27 Mar 2008

Even though a college degree doesn't guarantee anyone a job or success, it can still be a great foundation for a successful career. But in order to send your kid to college, don't make the mistake of getting college loans.

Going into debt for college is a huge mistake, and a student loan will stay with your kid for years— so long, in fact, that the loan will become a family pet!

I want you and your family to be debt free, so here are three proven ways to send your child to college without going into debt:

  1. Open an Educational Savings Account.

    An Educational Savings Account (ESA) grows tax-free when used for higher education. You should fund the ESA in a growth-stock mutual fund. Right now, you can only invest up to $2,000 per year, per child, if your household income is under $200,000 per year.

    How helpful can an ESA be? I'll show you. If you start investing just $166.67 per month ($2,000/year) from your child's birth to age 18 through an ESA averaging 12%, you would have $126,000 tax-free. That's great for most schools with inflation factored in!

  2. Start a 529 Plan.

    If your income rules you out of opening an ESA or you need to save more than an ESA allows, you may want to look into a 529 plan. 529s are state-school plans, but most allow you to use the money at any college. (That means you can save in New Hampshire's 529 plan and go to college in Kansas.)

    There are many 529 plans out there but the best type is a flexible 529. Flexible 529s give you more control of your money by allowing you to move your investment around periodically. This is the only type of 529 that I recommend.

  3. Get Creative!

    My favorite methods of paying for school, other than savings, are grants and scholarships, most of which go unused. Scholarships are very useful if you're getting a late start at saving. You can buy software programs that list hundreds of thousands of available scholarships. One of my listeners, Denise, bought one of these programs, applied for 1,000 scholarships, and got accepted by 30. Doesn't sound like much, but those 30 scholarships paid her $38,000 for college!

    You can also look into companies that have work-study programs. These programs pay for tuition based on one's employment with the company. UPS has a work-study program and so do many other companies. Of course there is also the option of serving in the military or National Guard, which will also pay for your tuition.

If you commit yourself to do at least one of the plans listed above, you can send your kid to college without taking on any debt. Most people know how to go about looking for scholarships by having their child talk with a high school guidance counselor, but very few people know how to start an ESA or a 529 plan.

To find out how to get started, contact an investment professional I recommend. The person you'll be connected with will be able to show you all the ins and outs of these plans and help you or a loved one get started preparing for a debt-free college career.

To learn more about paying for college, check out Financial Peace University. In the class, Dave teaches a whole lesson about the necessary steps to take to prepare for college funding.

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