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Planning for College Expenses
One of the largest financial burdens a family carries in their child’s educational career is the plan for college. How do you plan to pay for their education? There are three main ways to pay for the expenses of a college education:
- Start saving while your child is young so that you have enough to pay for it before they enroll
- Work to pay all expenses while the student is enrolled in school
- Take out loans, and pay them once the student graduates
Generally families will find a combination of the three options will work best for them. But how do you determine how you plan to pay for their education? Being educated about your options will help to determine which methods will be best for you.
Saving
Understanding the in’s and out’s of saving for your child’s future can be tricky. There are certain types of accounts that will help your ability to get aid, in addition to the savings that you are providing your child.
You will want to make sure that you are starting the savings account in your name, and not the child’s. This will affect how much financial aid you will be eligible for later. For example, if a parent has over $100,000 in assets, the government will expect them to contribute $6,000 of it towards education. If the student has $100,000 in assets, the government will expect them to contribute $20,000.
It is acceptable for a student to have roughly $3,000 in a checking or savings account in their name without losing any financial aid eligibility, according to the U.S. Department of Education. Money beyond that amount will be deducted from federally funded scholarships, grants, or aid that the student may be able to receive.
Beyond just savings accounts, there are other options that will allow you to save money tax-free. These include 529 college plans, and Roth IRA accounts. Consulting a financial planner will help to determine which type of account will be best for your goals.
Pay As You Go
This is an option that many students and parents opt for. Paying tuition and expenses as each semester comes can help to reduce the financial burden that many recent college graduates face. There are multiple pay as you go options that allow for the student to minimize overall debt.
Work-study programs are a great option for those who wish to receive experience in their desired field while still attending school. This option, while not available for all students in every field, will help build a strong resume. These programs will also help to provide part-time work while in school that will help pay tuition bills. Eligibility for work-study programs will be determined by the student’s financial need, which is figured by the Free Application for Student Federal Aid (FAFSA).
If work-study programs aren’t available, there are still plenty of options for those who wish to pay as they go. Some students opt to work part-time while attending school full time. Others may decide to work full-time while attending school part-time. It will inevitably take longer to finish a degree, but will allow for the student to pay all of their tuition as they go, while also building a strong resume. Some students will also opt to take a semester or two off throughout their college career in order to work full-time to help pay off tuition fees that have been accrued.
Student Loans
Many people opt to take some form of loans to help pay for their tuition. There are many forms of loans available, from federal subsidized loans to personal loans. Each type of loan has their benefits, and drawbacks. Federal student loans are available free of a credit check, generally providing the best possible interest rate for students. Make sure to research all options before determining which loan type will be best for your overall goals.
Federal direct subsidized loans are one of the most popular types of loans. This loan must be in the student’s name. The amount that you are eligible to borrow is based upon your FAFSA application, and increases with each year of school that you complete. These loans do not become due until you graduate, and the government subsidizes the interest while you are in school, helping to keep costs as low as possible. Federally subsidized loans also generally have the lowest interest rate.
Federal direct unsubsidized loans are one of the other options for student loans. Also required to be in the student’s name, this loans is also based upon financial need, which is determined by the FAFSA. With a higher interest rate, and interest that begins to accrue as soon as the loan is disbursed, the student can defer payment of this loan until after graduation.
There are also loans that are available to parents through the federal government. These loans are available at a slightly higher interest rate than the loans available to student. These loans are also available based on financial need. This loan has an interest rate that hovers around 8%.
Private loans are also available through many other sources including schools, and banks. These loans have interest rates that are far more variable. These loans are not based off of the financial needs determined by the FAFSA, making them a viable option for those who do not qualify for need-based loans.
Finding the Method Which Works Best for You (and Your Family)
As you determine the goals of you, or your family’s educational goals, you will want to weigh all of the options for which savings path you choose. There are many options available, and not all of them may be correct for what you are trying to accomplish. Speak with s trusted financial advisor and/or college planner to discuss which options are viable in your financial situation and suited for your specific goals.
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