Her parents have saved nothing, so she’s getting a job herself. What should she do next?

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I’m 15 years old. I’ll go to college in a few years. My parents haven’t saved up any money, but I’m getting a job soon so I can start saving. Where should I put the money? A 529 plan? A Roth IRA? Somewhere else? I don’t want to leave all of my savings in a savings account because FAFSA will see that and I’ll get less aid. Thanks!

– Cheyenne in California

Howard Dvorkin CPA responds…

First of all, Cheyenne, congratulations on being wise beyond your years. Not many teenagers realize that saving money is so important. Sadly, many adults don’t realize it, either.

You’re also smart enough to understand how the financial aid system works (or doesn’t work). FAFSA stands for “Free Application for Federal Student Aid,” and you fill it out on a federal website. But like everything else run by the government, it’s not explained in the clearest terms.

(Here are Debt.com’s tips for making the process less time-consuming and stress-inducing.)

The truth about FAFSA and Financial Aid

One big FAFSA myth is that you can’t apply for student aid if your family earns too much money each year. In reality, you can fill it out no matter what they make. That’s because most aid is indeed “needs-based,” but not all of it.

I want to get back to your original question, Cheyenne, but since you’re the studious sort, you can check out all the aid that filling out a FAFSA gives you access to:

  • Direct subsidized loan
  • Direct unsubsidized loan
  • Direct PLUS loan
  • Federal Pell grant
  • Federal work-study programs
  • Federal Supplemental Educational Opportunity Grant (FSEOG)

So, my first piece of advice is: Don’t worry about exceeding the government’s income limits. That’s called the “Expected Family Contribution,” and the Department of Education has a 36-page booklet explaining how it works. I’m going to take a wild guess and predict that’s not something a 15-year-old wants to read. (I don’t want to read it, either, and I’m a certified public accountant three times your age.)

What not to do as you save for college

Now let’s get back to your big question: What should you do with all the money you earn over the next few years? Let’s address the specific options you mentioned.

Let’s dismiss a Roth IRA. That’s a retirement account. While you can use a Roth IRA to pay off student loans – something I’ve written about before – it doesn’t apply in your case. You’re just starting out, and it doesn’t make sense to contribute to a retirement account only to raid it a few short years later.

A 529 Plan is also a government program but on the state level. So, the terms of California’s 529 Plan are different than Florida’s, which is where I live. Also, the perks of these plans are accrued over many years, which is why parents will open them when their children are born.

The biggest benefit is tax breaks that let families invest money they’d otherwise pay to the government. This is all quite beyond what you’ll be dealing with over the next 2-3 years before you head off to school.

The best way to save for college in your situation

OK, so I just shot down all your suggestions. What’s left? You have a couple of options, ranging from conservative to radical.

Step 1: Bank your savings

First, if you just want to save money, I’d suggest simply socking it away in a savings account for the time being. With interest rates so low – even the best certificates of deposit are paying only half a percent – you don’t need to worry that you parked your money in the wrong place. Right now, this is just about building up a nest egg.

And unless you earn more than $26,000 as a part-time high school employee, don’t worry about disqualifying yourself for student aid. As the wonderful research site Student Loan Hero says, anything less than that and “your expected contribution to college costs would automatically be zero.”

Step 2: Apply for every scholarship you can find

In the meantime, I’d also make a list of scholarships you can apply for when you get closer to high school graduation. You can rake in serious cash this way. How do I know? Because Debt.com offers its own scholarship – for those who apply for other scholarships. It’s called The Debt.com Scholarship for Aggressive Scholarship Applicants. One past winner applied for 96 scholarships.

Step 3: Consider where and when to start school

Finally, I’ll offer what might seem like a radical option: Don’t go to college right away, or at all. At a minimum, consider attending a local community college to earn your two-year degree, then transfer to a prestigious four-year institution.

Few young people realize that four-year schools set aside enrollment slots for transfer students – and those are sometimes easier to get than applying as a freshman. In the meantime, you’ll save a lot of money on tuition, and no one will ever know you didn’t attend the four-year school the entire time. Your diploma will simply say you matriculated.

You might also consider delaying college to save more and to figure out what you want to do. A simple Internet search will reveal how this is becoming a more popular option as student loan debt tops $1.5 trillion – and parents want to ensure their children have the maturity and direction to get the most out of their college careers.

Finally, you might decide on a career path that doesn’t require college at all. Many lucrative professions don’t. I’d suggest making an appointment with the career counselor at your high school, and using your prodigious intelligence and drive to figure out what you want to be when you grow up.

Whatever it is, I’m certain of one thing: You’ll be a success. You’ve already shown me you’ll manage your money well, and you think ahead. Good luck, Cheyenne!

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About the Author

Howard Dvorkin, CPA

Howard Dvorkin, CPA

I’m a certified public accountant who has authored two books on getting out of debt, Credit Hell and Power Up, and I am one of the personal finance experts for Debt.com. I have focused my professional endeavors in the consumer finance, technology, media and real estate industries creating not only Debt.com, but also Financial Apps and Start Fresh Today, among others. My personal finance advice has been included in countless articles, and has appeared in the New York Times, the Washington Post, Forbes and Entrepreneur as well as virtually every national and local newspaper in the country. Everyone should have a reason for living that’s bigger than themselves, and besides my family, mine is this: Teaching Americans how to live happily within their means. To me, money is not the root of all evil. Poor money management is. Money cannot buy happiness, but going into debt always buys misery. That’s why I launched Debt.com. I’m glad you’re here.

Published by Debt.com, LLC