Parents, are you panicking about how to pay for college?

  • Jul 5, 2022, 11:40 AM
Smart ways to pay for college in 2022 and 2023

 

Even though you have 18 years to prepare, your child’s college years have a way of sneaking up on you.

Before you know it, that little baby is halfway through high school and you’re forced to get real about how you’re going to shell out upwards of $35,000 per year for higher education. Over four years, that amounts to at least $140,000!

The average American household carries at least $30,000 of student loan debt, with many borrowing much more.  
Still, college continues to be the primary way to prepare young people for a wide array of fulfilling and lucrative careers.

If your child is planning to attend college after high school, keep calm and carry on! There are many things parents can do to manage the cost of college. Here’s a simple breakdown.

1. Start saving and investing early.  There are many vehicles for saving for your child, but the bottom line is that you should start setting aside any amount you can afford as early as possible. A little bit of money set aside monthly will add up over time. The best way to do this is to put savings from each paycheck on autopilot by setting up automatic deposits into an educational savings account when your child is young. 

For example, if you set aside $50 a month from the time your child was born until she turned 18, you would save $10,800, not counting any interest earned on the account. 

You could also open a 529 college savings plan account. This can be a great way to save for educational expenses for your child, grandchild, or even yourself. Though contributions to 529s are not tax deductible, the account’s earnings are not taxed when you use the money for qualified education expenses like tuition, books, and even room and board. 

There are many 529 plans to choose from depending on where you live. This 529 comparison tool offers one way to help you compare plans by state. 

2. Seek guidance from financial aid experts. There’s a common misconception that you have to fall into a lower income bracket to receive financial aid for college. The truth is that while many scholarships and grants are needs-based, many other financial aid opportunities are merit-based. So, if your child does well academically or meets other specialized criteria, he may qualify for assistance no matter what your household income might be. 

For example, many colleges and universities have endowments and use this “institutional aid” to attract promising students – not just athletes – to their programs.

While going through the application process, start talking to your preferred school’s financial aid office as early as possible. Employees at financial aid offices are trained professionals at the ready to help people find financing for school. They have dealt with many others in the same situation as you and can tell you what options are available for your financial circumstances.

3. Research scholarships and grants.  Why borrow when you don’t need to? Regardless of how easy it is for you to find student loans, it’s a good idea to look for scholarships and grants. High school guidance counselors and college financial aid offices usually have information on available scholarships and grants. You can also find helpful information at finaid.org.

4. Borrow sensibly. Even with financial aid, many students will still need to take out loans to pay for college. First, apply for FAFSA and exhaust your federal loan options. Then, consider a private loan from a reputable financial institution. The smartest borrowing option is to seek out a loan from a not-for-profit, member-owned credit union, which may offer better terms and a lower interest rate. 

The key is to limit borrowing to an amount your child can reasonably be expected to pay back in a decade or less. The lower the loan amount, the better, but a good rule of thumb is to borrow no more than the expected first year’s salary.

5. Consider a home equity line of credit or loan. A home equity loan or line of credit can present a simple and low-cost way for parents with significant equity in their homes to finance college. Home equity loan interest rates are usually fairly low and the interest is tax deductible as well. However, it is important to remember that home equity lines and loans are secured debt, meaning you could lose your home if you don't make payments. Talk to your bank or credit union to learn more about using your home’s equity to pay for college.

6. Explore the community college option.  Academically speaking, community colleges offer a much less expensive option for meeting almost any degree program’s general education requirements. Plus, students at community colleges often benefit from close teacher-to-student ratios. There are also huge savings on room and board when a child attends a local institution and can continue living at home. Just remember to investigate requirements for transfer students to ensure that community college courses will be accepted by the degree program at your child's four-year university.

7. Consider a gap year. Having your child take a gap year after high school will buy you a bit more time to prepare for the expense of college. In addition, they can use the time to work a job or take on a service opportunity that could possibly help them earn money for college. For example, young people who serve with an AmeriCorps program can earn a small stipend to help pay for college expenses. A year of service can also present extra time for growth and maturation. Note, though, that many gap year programs cost money, so review the options carefully.

8. Let your child have skin in the game. While you may want to pay for all of your child’s college expenses, sometimes doing so can hurt your own chance of having a comfortable retirement. Sometimes, it’s OK to have your child help pay for college with a combination of student loans and work earnings. From saving up from summer jobs and side hustles to finding work-study and assistantship opportunities, there are options.  Having to help pay for college will undoubtedly make things more challenging for your child, but having skin in the game typically makes her care a whole lot more about pushing through that painful statistics class so she can graduate on time. 

Help is out there.  Paying for college is no small feat, yet despite how intimidating the process can be, you aren't alone. Reach out to speak to the experts and keep yourself informed so you’ll be ready to pay for college without saddling your child and yourself with debt.