Do You Know How You Will Pay for College?

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Many parents fully expect to pay for (or at least help pay for) their children to attend college. This, however, is becoming an increasingly daunting task.  The cost of a college education continues to rise, becoming almost prohibitive.  One of the first things to realize as you prepare to pay for your child’s education, or prepare to have your child get ready to pay for his or her own education, is that it is highly unlikely that you will be able to rely on one source of funding to meet your needs.

Cultivating Different Options when Planning to Pay for College

Just as it’s a good idea to cultivate multiple income streams, it is usually a good idea to consider multiple funding sources when planning to pay for college.  First of all, your child should be working toward getting some sort of scholarship.  Scholarships are scarcer now than they used to be, but they have not disappeared.  Extracurricular activities, academic performance and even physical attributes (such as being tall or belonging to a particular cultural or ethnic group) can lead to scholarships.  Local and national organizations and companies often offer scholarships.  Find out early on what scholarships are available, and encourage your child to apply.

You can also begin saving now, and encourage your child to do so.  Setting aside money in a 529 plan or a Coverdell ESA can be a good idea. The earlier you start, the better your chance of seeing the money grow into a sum that can be quite helpful at college.  Your child can also contribute some of his or her income and allowance toward the effort.  If you feel comfortable doing so, you can also ask your relatives to contribute to a college fund in lieu of purchasing toys as gifts.

While you are working on doing what you can to pay for college, it is a good idea to look for other options.  Fill out a FAFSA and find out what government aid you qualify for.  This can include grants in some cases.  There are few things more helpful when it comes to paying for college than free money.  Additionally, your student might be eligible for work study, guaranteeing an income that can help pay the costs of attending college.  Work study can be very useful when it comes to providing the money needed to buy food and pay other expenses associated with college. (Getting a job is another option.)  And, of course, there are federal student loans that come with very competitive interest rates.

It is important to exhaust your low-cost options before turning to other college funding sources.  However, if scholarships, college funds, grants and federal student loans fail to cover the cost of a higher education, it is time for other measures.  This usually means turning to more private sources for your loans.  There are banks that provide private student loans, and you can turn to P2P lending to meet any funding deficiencies you might have.  However, it is important to realize that private student loans usually come with higher interest rates than federal student loans.

In the end, it is best if you can avoid borrowing money to pay for college.  If you need to, though, try to choose student loans with lower interest rates, so that and your student aren’t paying as much in the long run.  With some planning, you can cultivate different funding sources that can help you pay for college.

Published or updated May 30, 2013.

Comments

  1. And definitely check out the American Opportunity Tax Credit. Most people now qualify for up to $2500 in tax credits ($1000 refundable) after the income restrictions were raised in 2009.

  2. You may also want to actually consider if college will be the best option for your children, especially 18 years from now. Online/distance learning will be an accepted alternative when compared to today, and many employers value experience over academics (and this will probably become more apparent). Meanwhile, most universities continue to overcharge while at the same time annually raising tuitions. The overall quality of education declines, yet university presidents and profs enjoy ever-increasing compensation packages and tenure, unchallenged by those who willingly throw out tens of thousands of dollars for a perceived “need”. Is a college education the best use of your hard-earned money when real learning (libraries, book swaps, webinars) are largely free? Perhaps saving for your college-bound son’s or daughter’s entrepreneurial ventures may be a better option. The lemming-like chase of the potentially decreasing “asset” of a university diploma needs to be questioned.

    • I do agree that there is a ton of information out there these days and the student with initiative can really go out and educate themselves. Still, not getting at least an undergraduate degree can place limitations on your career in many circumstances. You really have to know that you will be able to do without a degree.

  3. One of the overlooked options is an ROTC scholarship. I wrote an article about that option called “How Would Like a Free College Education”

  4. Thanks for the post! Another tax credit to check out is the Lifetime Learning Credit.

  5. This is something that is on my mind a lot because we are 31 weeks pregnant with our second and have discussed having a third child. I want to be able to have savings set aside for them, but I also want them to realize that we won’t just hand them money whenever they need it. We will definitely be proactive with grants and scholarships when the time comes, and hopefully in 13-18 years we’ll have savings for our children but also a good understanding of the education options at that time.

  6. I paid 80% of the total costs by working part-time and doing internships. I definitely recommend the internships for anyone starting out in college — it will give valuable work experience as well as reduce total debt incurred.

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