Your Guide to Navigating College Expenses

When considering the price of college, many people often focus on the cost of tuition. But when it comes to college expenses, tuition is only one part of the full price tag. There are also student fees, room and board (whether that means in the dormitories on campus or off-campus housing), transportation costs, meal plans, textbooks, supplies, assorted daily living expenses, and more.

All this can add up quickly: During the 2022-2023 school year, the average total cost of college for in-state students attending a public, four-year university (and staying on campus) was $27,940 per year, or $111,760 over four years. Out-of-state students who are also attending a public, four-year university and staying on campus can expect to pay $45,240 per year, or $180,960 over four years. (Private university students will pay closer to $57,570 per year, or $230,280 over four years.)

Though these numbers may sound intimidating, the good news is that there are ways to help navigate these expenses.

Start a dedicated savings account

Setting aside a portion of money each month into any traditional savings account is a prudent way to save for your children’s college, or any purpose. You can also establish a custodial account where you contribute money on behalf of a child, who is the beneficiary of the account. These accounts usually don’t have penalties and if set up properly, any returns are taxed at the child’s tax rate (because they technically own the account).

Regardless of the type of savings account you choose, as long as you don’t take funds out, the interest you earn will compound over time. Especially if you take advantage of the current high interest rates on many bank accounts or special accounts, such as a Bank of Hawaii’s bonus rate savings account.

Set up a 529

A 529 plan is a tax-advantaged savings plan that operates similar to a CD, except it is aimed at helping people save for college. Named for Section 529 of the federal tax code (which relates to qualified tuition programs), a 529 plan is typically opened by older family members for child beneficiaries. As long as the funds in a 529 plan are spent on educational purposes, withdrawals can be made both state and federally tax-free.

Open a Certificate of Deposit (CD)

A certificate of deposit (CD) is a type of savings account where you keep your money without taking a withdrawal for a specified length of time, such as one or two years, which you can then typically renew at the end of each term at a refreshed interest rate if you’re not ready to use the money (and want to keep earning interest). In return, CDs generally offer higher interest rates than usual checking or savings accounts.

Unlike 529 plans, CDs offer a guaranteed rate of return during the term so you know exactly what you’ll earn, while 529 plans are largely based on the performance of the stock market (similar to a 401(k) or IRA). This means 529 plans do well when the stock market is performing well, resulting in high-yield investments. But, keep in mind a 529 plan can also go down if the stock market is down or inflation is up.

Make a budget to save money

Whether preparing to save for college or any other financial goal, it’s prudent to assess your finances. Examine your income, debt, and monthly budget to see where you can make adjustments or cut back in order to set aside more money each month for college. By incorporating smart spending tips, creating a realistic budget that allows you to save even just a small amount each month, and tracking your spending to make sure you’re not overspending, it becomes easier to stay on track when it comes to saving for education.

Minimize debt

Having excessive debt—especially high-interest loans or credit card debt, which can incur substantial monthly fees—is often a major obstacle towards saving money. Create a debt repayment strategy that prioritizes bills with the highest interest rates first or consider consolidating your debt into a personal loan with a lower interest rate, which can save you money in the long term. Avoid risky point-of-sale loans, such as “buy now, pay later” offers, which can quickly accumulate and may have high interest rates and fees.

Maximize your miles

If you’re planning to pay for some college expenses on a debit or credit card, consider using cards that offer cash back bonuses or extra points for purchases you have to make anyway. For example, if you need to buy plane tickets to visit your child at college or for your child to return to Hawaii during summer or winter breaks, consider paying with a card that offers airfare rewards, such as the Hawaiian Airlines® Bank of Hawaii World Elite Mastercard®—that way, your everyday purchases are pulling double duty by helping you earn free, or discounted, flights.

Access Your Equity

If you’re a homeowner, you may be able to apply for a cash-out refinance or a home equity line of credit (HELOC) to access money from the equity in your home.

Ready to get started but not sure where to start? Schedule a call with one of our local team members to discuss your savings options and open the bank account that’s right for you.

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