Making College Affordable
In 2010 the average college student graduated with around $25,000 in student loan debt. College tuition payments have risen over 900% in 4 decades and continue to rise at a dramatic rate. Unfortunately this means many students are either putting themselves in major debt to afford higher education, or that they simply can’t afford to attend college at all. With so much riding on your kids receiving a good college education, it’s vital to start planning how to make college affordable for you and your kids as early as possible.
College can be affordable if you have the right plan. Call us at to speak with a financial resource professional that can provide expert advice on how to make college as affordable as possible, so your kids can graduate without of a mountain of debt to show for it. With the right college savings strategy, you can make college-bound dreams a reality.
College savings plans
Start saving for your kids’ college as early as possible and you will help ensure they have the most money possible when they finally head off to school. You have several options when it comes to choosing a college savings plan:
- 529 Savings Plans. These are college savings plans offered by states and educational institutions. While the institution plans may limit your child’s ability to apply to the college of their choosing, a state plan can be used to meet the costs of schools throughout the country—even out of your state. As long as the plan meets a few basic requirements (check with your provider) you will get big tax incentives at both the federal and state levels for your investment. Typically, you retain control of the account. The amount you can put into a 529 plan in total and per year varies based on which plan you choose.
- 529 Prepaid Plans. This 529 plan allows you to prepay for in-state college tuition, assuming the college is public. In some cases, the plan can be converted if your child decides to choose a private college or out-of-state university. There are also Private College 529 plans available, which allow you to prepay for private college education.
- Coverdell Education Savings Account (ESA). Like the 529 savings plan, this type of account allows you to save money while receiving certain tax incentives. It even allows you to withdraw money free of federal income tax. An ESA has a contribution limit of $2,000 per year. Assets can even be withdrawn early to pay for elementary and secondary education for public or private schools. The funds must be withdrawn and used by the time the beneficiary (your child) reaches the age of 30.
Additional tips to make college affordable
Besides setting up a college savings plan as early as possible, there are other steps you and your children can take to make college more affordable:
- Explore grants and scholarships. You don’t have to have a star athlete or a scholastic genius to find grants and scholarships that your child can use to help pay for college. Explore local charity organizations, clubs, and foundations in your area, as well as in your child’s chosen field of study for scholarships. For grants, look at a Federal Pell Grant or a Federal Supplemental Educational Opportunity Grant (FSEOG).
- Consider a work-study program. The Federal Work Study Program (FWS) is intended to help kids pay for college by earning financial funding as they work a part-time job and go to school.
- Use a military tuition assistance program. The U.S. military offers tuition assistance programs for members. Every branch of the military offers 100% reimbursement to active-duty personnel who take classes while off-duty. Veterans and members of the Reserves and National Guard are eligible to receive money for college tuition through the Montgomery GI Bill.
- Use loan deferment and forgiveness options. If you work for an organization such as Peace Corps or AmeriCorps you have attractive options for student loan deferment, as well as educational awards of cash that can be used to pay off student loans. In the Peace Corps you are actually eligible for 15% cancellation on the balance of outstanding Perkins Loans for each year you serve.
- Use Upromise®. This is a special program offered by Sallie Mae that allows you, as well as friends and relatives, to pay for your college as you shop for everyday items. You earn money for college shopping online, eating out, and shopping in stores. You can sign up a www.upromise.com.
- Study close to home. Public in-state tuition is usually far more affordable than out-of-state or private education. In addition, going to school close to home may allow you to commute, which saves big on housing costs and even food.
- Finish credits early. Advanced placement (AP) courses allow you to earn college credits during high school. Fewer credits to earn during your actual college years means less tuition that will have to be paid before you graduate.
- Use home equity to pay for college. If you start early and pay down your mortgage significantly or pay it off completely, you may be able to use a home equity loan to pay of college. This allows you to ensure your loan can be discharged by a bankruptcy filing if you end up in a state of financial hardship. It also may allow you to still qualify for financial aid, since many colleges do not factor in home equity when calculating aid.
Signing up for financial aid
The Free Application for Federal Student Aid (FAFSA) should be filled out as close as possible to January 1st of the year you wish to apply to college. This form allows you to apply for federal student aid programs, including loans, grants, and work-study programs. Financial aid is based on need, so your household wealth will be a large factor in determining how much aid you receive.
Once you apply, the Department of Education will send you a Student Aid Report (SAR) that shows how much aid you qualify to receive and what types of aid you can use. In addition to federal financial aid, you can also check with the school to see if they offer any institutional financial aid programs.
Getting the right student loan
Whether it’s part of your federal financial aid plan or an alternative student loan you take out personally, student loans usually end up being a major part of any plan to fund a college education. You can get subsidized or unsubsidized loans—the subsidized loans allow you to avoid paying interest until the end of your grace period. You also typically have a grace period to start paying the loan back.
The danger of student loans is that they have a number of restrictions when it finally does come time to pay them back. If you have too much debt, you can find programs to consolidate all your student loans together, but you can’t consolidate them with your other debts in a regular debt consolidation program. In addition, student loans typically cannot be discharged by filing bankruptcy, so one way or another you’re going to have to pay the money back. This is why it’s vital to research every student loan option carefully to make absolutely sure it works for your finances.