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If you have paid off your consumer debt and have saved 3 to 6 months in an emergency fund then if you have kids, it is time to start thinking about how you are going to fund their college education. With no money going towards debt, you now have the freedom to fully fund your kids’ educational funds. Add more money to their 529 plans. Build up new ESA’s (Educational Savings Accounts). Or just stash cash in a savings account that is tagged to be used only for your child’s education, books, housing, or food related school costs.

The time to start saving for a child’s education is the day they are born. However, the reality is that many people wait until much later because they feel they have plenty of time, or they’ll do it when they make more money, or when their debt is paid off. But the truth is for most none of the above happens. About the time the son or daughter approaches 10 years old parents start to stress a little that they haven’t put anything aside for college. For many this realization is STILL not enough to push them into action. Then they wake up, the kid is 14 years old and there is still no money for college. And now they think the ONLY option is to take out a loan.

If you are at the point where all of your consumer debt (except for your mortgage) has been erased you are in a great place to save for college. This is true whether your children are in grammar school or are in high school. Granted a child in high school means you do not have a lot of time. But remember, you do not have to come up with the money for all 4 years of college on day one of their freshman year.

So where to start? The money you were throwing at debt now throw into saving for college. If your child is under 10-years old you still have time to take advantage of 529 plans or Educational Savings Accounts (ESA’s).

529 Plan

A 529 Plan is a savings plan that is managed by a state or college and most plans allow you to use the money at schools outside of the state it is purchased in. As long as it is only used on education. Most states have one or more 529 plans. 529 plans grow tax-free from Federal taxes and most state taxes. As long as it is used for education. If you withdraw the money for any non-educational reasons, then you will be taxed at the current rates.

ESA’s

Educational Savings Accounts or ESA’s allow $2000 per year to be placed into investment accounts, sort of like a 401k for education. Contributions are not tax-deductible but interest on earnings are. If you withdraw the money for non-school related reasons then you are subject to current tax code. Many people prefer ESA’s over 529 plans because generally you have more investment options (choices) then with 529 plans.

Savings Account or Money Market Account

If you just want to just save up cash then open a separate savings account. Or for slightly better interest rates place the money in a money market account. While it won’t grow the way a 529 plan or ESA can, it would be the safer choice especially if your kids are teenagers already and close to graduating from high school. This is also a good option when they are in the first couple of years of college. If you got a late start in saving but can now sock away lots of cash, doing so in a bank account or money market account would make sense. If you time it right, you could even look at 6-month or 12-month CD’s that mature just before the semester that you may need it for.

The point here is that once you have erased debt you have the freedom and choice to build up savings for your child’s college fund. And with a combination of these choices you can completely avoid loans or greatly lessen the amount that may need to be borrowed. And do not overlook any scholarships your kids may be qualified for.