Paying for College 101: 5 Tips Parents Need to Know

As the fall semester swings into full gear, many current and prospective college students--and their parents-- are thinking about how they will ultimately pay for that coveted degree. We constantly see headlines about the increasing cost of education and the strain it puts on family finances. There is no question that funding a child's college education is one of life's most significant investments. So how can you keep junior's undergrad years from undermining your own retirement savings? The following are several important planning tips to help you ace this test:

Start with a plan
The earlier you start planning out your family's financial future, the better. Start by writing out your goals and the strategies you will need to meet them so you have a clear path toward financial success. According to the Voya Retire Ready IndexTM study, only 17% of working Americans said they had a written financial plan and only 31% had created a comprehensive budget. Think about this as if you were building a house--would you break ground before you had a blueprint for the structure? Without a good picture, or even a sketch of what your end goal is, your foundation is no more solid than a castle in the sand.

Save early and save often
New parents may especially feel like they have all the time in the world to prepare for their child's college education. It's important to recognize that the price tag associated with a college degree is one of the largest expenses for a family -- right up there with purchasing a house and paying for a wedding. You have to consider not only the cost of education, but also room and board. Time tends to move quickly once you have children -- it's critical that you start saving as early as possible to get the long-term benefits of compounding.

In 2014, Voya launched the Born to Save program in an effort to encourage the next generation of Americans to start saving early. Through the program, every baby born in the United States on October 20, 2014 was eligible to receive a $500 mutual fund investment as a head start on their future retirement security. While this milestone is still a long way off for these babies, smart financial steps like this pave the way for future financial success, and can help reduce the impact of other expenses, such as education costs.

Establish good savings habits
Consider opening a savings account for your child to contribute to from a young age--earmarking it for their future college expenses. This will give them the opportunity to appreciate the importance of saving, watching interest accumulate and working towards a goal. While your child may not be able to pay their entire tuition bill, having them participate in the process may relieve some of the pressure on you, especially if they are responsible for covering certain expenses such as books, computer needs or even entertainment money. You may find they eventually learn to budget themselves more carefully in college when they have some skin in the game.

Take advantage of 529 plans
One of the best tax advantaged vehicles for college savings is a 529 plan. These plans, which are sponsored by states, state agencies or educational institutions, are intended to help families save for future education costs. Consider opening one for each child as early as possible, and allocate a certain amount into each account every year. Find a plan with low fees and a good rating -- check to see if one is offered in your state, which also allows you to deduct some of your annual plan contributions off your taxable income. Make sure to save as much as you can into those plans each year. Schedule it into your list of year-end financial priorities, or time it for when you receive a potential bonus. Also, encourage your child's grandparents and relatives to make financial gifts for birthdays and holidays.

Research Scholarships and Financial Aid Options
Many parents think their child will be lucky enough to get a full ride to school through either athletic or academic achievements. But this strategy is no different than relying on a lucky lottery ticket as your retirement plan. Still, before you decide to utilize the funds you have invested into a 529 plan, encourage your child to apply for as many scholarships as possible. There are many options and opportunities for chipping away at the tuition bill. After acquiring any scholarships and incorporating them into your financial plan, then exhaust the 529 plan. Finally, look into financial aid options and your ability to pay out of pocket.

While covering the cost of college can be a difficult challenge to overcome, it can be much less daunting when you have a plan in place. If you start saving early and use all of the resources available to you, chances are you may get an A+.