There was a time not so long ago when you could support a family with nothing but a high school diploma. However, in recent decades the cost of living has been rising rapidly, while wages have stagnated. A college degree can help bring your wages more in line with your expenses, but paying for college has also gotten more and more expensive! Whether you’re a parent saving for your child’s education or thinking of getting a degree yourself, ways to minimize this cost are surely at the forefront of your mind.
Cost of Attending College
Colleges publish official cost of attendance figures on their websites, often subdivided based on various living situations. This information can be useful when comparing different schools. It is also used by the Free Application for Federal Student Aid (FAFSA) to calculate what your expenses are after your expected family contribution. However, you should just use these numbers as a starting point for making your own budget. Your circumstances might be different than the baseline assumptions.
Pay Less for College
In addition to finding ways to pay for college, you should consider how to minimize the cost in the first place. According to the National Center for Education Statistics, a year of tuition at a 2-year institution is only about half the cost of a year at an equivalent 4-year school. However, bear in mind that this won’t save money if none of your credits are transferrable! If you have a particular 4-year school in mind, research whether there are 2-year schools that frequently work with your dream school so you can maximize the number of credits that will transfer over.
Also consider whether you can cut costs in your living situation. Some schools require first-year students to live on campus, but even then you can shop around for different meal plans to save money. If there aren’t residency requirements, consider whether living off-campus would be cheaper than staying in the dorms. Is it possible to live with your parents or other family members for less than market rent? If so, consider schools that are close to your family member’s home.
Saving for College
When you’re saving for college, it’s important to keep pace with inflation. The cost of college increases every year. Many parents choose to invest in a 529 plan when their children are still very young. 529 plans can be broadly divided into pre-paid tuition and savings plans.
Pre-paid tuition plans allow you to pay for credits at certain colleges at current rates. These are pretty much guaranteed to be significantly cheaper than rates in 10 or 15 years. However, pre-paid tuition assumes that your child will attend the school you planned for them to attend. If they don’t, you’ll only recoup a small percentage of your investment. Furthermore, pre-paid tuition only covers tuition, not room and board or anything else that might crop up.
Savings plans allow you to put money away on a tax-deferred basis. Withdrawals are untaxed provided you spend them on qualified educational expenses. This includes not just tuition but also room and board, books, computers, etc.
If your child ends up not using the money in their 529 account, you (or they) can always just withdraw it, though it will be subject to income tax. Alternatively, you can roll it into a 529 for another child, a grandchild, or other qualifying relatives.
If you’ve maximized your contributions to a 529 plan, you will probably want to speak to a financial advisor about the best investments to make. It’s generally not a good idea to use your 401(k) or other retirement savings to pay for your child’s college education unless you’ll already be 59 ½ by the time they start college.
Grants, Scholarships, and Work Study
If you or your child are starting school soon, one of the first things you need to do is fill out the FAFSA. Some colleges require you to submit the FAFSA as early as January or February in order to receive financial aid for the fall semester. Make sure you check with your school’s financial aid office as early as possible to avoid missing deadlines.
The FAFSA is the first step to obtaining many different forms of financial aid. For example, the Federal Pell Grant, offered to low-income students, requires you to have completed the FAFSA. There are also other federal grants for military veterans, teachers, etc. and various state grants for which you may be eligible.
Schools will frequently also offer scholarship packages that are based on financial need and/or the student’s grades in high school or at a previous college. There are also a wide variety of private scholarships you can qualify for based on everything from your intended major to past charity work to your enjoyment of Minecraft.
Your school’s financial aid office can also tell you whether you qualify for work-study programs. If not, you can consider an off-campus job. Not all students can handle the large time commitment, however.
Once you’ve exhausted all the other methods of paying for college, it’s time to consider student loans. Student loans are unsecured debt. It’s not like the loan company can repossess your brain if you fail to pay! However, they’re generally still considered relatively “good debt” because of the increased earning potential offered by a college degree. Make sure you only take out as much as you truly need and you have a solid plan to pay them back.
Federal student loans are probably the best choice if you can get them. Some federal loans are subsidized, meaning interest won’t accumulate while you’re in school. You can also get on an income-based repayment plan after you graduate. This could be a lifesaver if you’re going into a lower paying field like teaching or social work.
There are also private loans available, but these don’t have the same perks as federal loans and often have much higher interest rates.
Plan for Education with a Financial Advisor
Join us for a webinar tomorrow, March 3, to learn more about this important topic. You can sign up here to reserve your place in the online event.
Whether you’re planning to attend college yourself or looking forward to your child’s educational prospects, a financial advisor can help you make a plan to cover the costs. Contact us today to match with an experienced advisor.