These days, college is a pricey proposition. The average annual cost of attendance for a student living on campus at a public four-year college is $26,027 (in state) and $27,091 (out of state). The average cost of attending a private, nonprofit university is $55,840 per year.
If you’re worried about how you’ll cover the cost of sending your child to college, know that you’re not alone. Also know that you (and your student) have a number of funding options, including grants, scholarships, work-study, and student loans. Read on for tips on how to pay for college when your savings isn’t enough.
Steps to Take if You Can’t Afford College
Here’s a look at five things you can do to make sending your child to college more affordable.
Complete the FAFSA
The first thing every college-bound student is encouraged to do is fill out the Free Application for Federal Student Aid (FAFSA®). This automatically gives your student access to several types of financial aid, including grants, work-study, and federal student loans.
Even if you don’t think you’ll be eligible for federal student financial aid, it’s still a good idea to complete the FAFSA. Colleges often use the information from the form to determine eligibility for their own student financial aid, including merit aid.
Federal student financial aid can come in several forms:
- Grants A grant is a form of financial aid that typically does not have to be repaid. Many grants, such as the Pell Grant, are awarded based on financial need. However, some are based on the student’s field of study, such as the Teacher Education Assistance for College and Higher Education (TEACH) Grant.
- Work-Study Eligibility for Federal Work-Study is determined by information provided on the student’s FAFSA. Not all schools participate in the program, so check with a school’s financial aid office to see if it does. Work-study jobs can be on or off campus, and an emphasis is placed on the student’s course of study when possible.
- Loans Federal student loan eligibility is another type of student aid determined by the FAFSA. There are three basic types of federal student loans : Direct Subsidized Loans, Direct Unsubsidized Loans, and Direct PLUS Loans. Direct Subsidized Loans are for eligible undergraduate students who have financial need. Direct Unsubsidized Loans are for eligible undergraduate, graduate, and professional students, but eligibility is not based on financial need. Direct PLUS Loans are for graduate or professional students, or parents of dependent undergraduate students, and eligibility is not based on need.
(Learn more: Personal Loan Calculator)
Speak With the Financial Aid Office
Getting comfortable with the school’s financial aid office staff is a good thing. The office staff can be a font of knowledge for parents and students navigating the complex world of student financial aid. Not only can they help you understand what federal student financial aid you might be eligible for, they can also let you know what student aid is available through that particular school.
Financial aid office staff may also be able to point you toward other offices or departments on campus that may have job opportunities for students, or that offer emergency services for current students in the form of food or housing assistance.
Let Your Student Take on a Part-time Job
Asking your child to work part-time while they are in school can help offset expenses. If Federal Work-Study isn’t a part of their financial aid package, they can still look for a job on or off campus to earn some money to put toward books and living expenses. Learning how to manage responsibilities is also an excellent out-of-the-classroom lesson.
Some ideas for jobs that may offer part-time, flexible hours for students include:
- Babysitter or nanny
- Coffee shop barista
- Retail sales
- Restaurant server or cook
- Gym/fitness associate
Some part-time jobs might offer perks in addition to pay. Food service jobs might come with a discount on food during a shift, retail sales associates might get a discount on the store’s products, and working in a gym might come with a free gym membership. A visit to the campus career services office is often a good place to start looking for a part-time job.
Encourage a Gap Year
It’s not at all uncommon for a student to take a gap year between high school and college. Some students might not feel ready for college right out of high school. Others might want to have a specific experience, like travel or working in a specific field. Gap years can also allow students to earn money to pay for their future college expenses.
AmeriCorps is a federal program that pairs individuals with organizations that have a need. Volunteers can work in a variety of places and situations, from teaching to disaster relief to environmental stewardship, and more. Some AmeriCorps programs offer stipends, housing, or educational benefits like federal student loan deferment and forbearance, or a monetary award that can be used to pay for certain educational expenses.
Taking a gap year can give both you and your student time to build savings. It can also give your child an opportunity to gain work experience, or explore different professions. Of course, there can be drawbacks to taking a break from academics. It might be difficult to get back into the flow of studying after a year without that type of structure. Taking a year off without any structure or purpose might leave your child without a sense of accomplishment, so it’s generally a good idea to have a plan for how a gap year will be spent.
Consider a Less-Expensive College
Going to an in-state school vs. an out-of-state or private college is one obvious way to cut costs. Here are some other options to consider.
- Community college Community colleges often charge much less tuition than their four-year counterparts. Choosing a community college close to home can also save on room and board. Your student might be able to start at a community college, then transfer to the college of their choice to complete their bachelor’s degree.
- Tuition-free colleges There are some colleges that don’t charge tuition at all. Students at no-tuition schools may be required to maintain a certain grade point average, live in a certain region, or participate in a student work program. For example, service academies associated with branches of the U.S. military offer free tuition in exchange for a certain number of years of military enlistment.
- Professional school Another option might be to bypass a traditional college degree for training in a specific career field instead. Training for non-degreed positions might last anywhere from a few months to a few years, depending on the job. For example, commercial airline pilots aren’t required to have a bachelor’s degree, but they are required to have a pilot’s license and pass exams specific to the airline they work for. Jobs in the construction industry generally don’t require a bachelor’s degree, either, but might have apprenticeship programs or on-the-job training lasting several years.
The Takeaway
Paying for college is a major expense, no matter how you look at it. Fortunately, there are a number of ways to cover the cost of higher education, including scholarships, grants, work-study, part-time jobs, and federal student loans.
If those options aren’t enough, you can also look into private student loans. These are available through banks, credit unions, and online lenders. Loan amounts vary but you can typically borrow up the full cost of attendance at your child’s school. Interest rates are set by individual lenders. Generally, students (or their parent cosigners) with excellent credit qualify for the lowest rates.
Just keep in mind that private loans don’t come with the same protections, like income-based repayment plans and forgiveness programs, that are offered by federal student loans.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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10 ways a 529 college savings plan makes college more affordable
If you’re a parent or a future college student wondering how you’ll ever pay for college, the tax-advantaged 529 college savings plan was designed to encourage saving for future education expenses–even for elementary and secondary students. I’m working with Pelican to help educate people on how to save for college, especially with support from your family and friends.
By saving in advance and allocating 529 funds to various investment options, you might not need to take out any student loans to attend college. That can save a considerable amount of interest over the life of a loan.
Here are ten ways a 529 plan makes going to private school, vocational school, or an accredited college or university (in the U.S. or abroad) more affordable.
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A 529 college savings plan allows you to name and save for a future student or beneficiary, such as a child or yourself. You contribute and choose investments from a menu similar to a retirement account.
Unlike a traditional retirement account, you don’t receive a tax break for 529 contributions; however, your investment growth–such as interest, dividends, and capital gains–is tax-free. That allows your balance to grow faster than it could in a taxable brokerage account.
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In addition to tax-free growth, your withdrawals from a 529 plan are not taxed at the federal (and often state) level if you spend them on qualified education expenses, which I’ll cover. That means you don’t lose part of your account to taxes when you’re ready to spend it on qualified education expenses for the beneficiary.
However, a significant downside of a 529 plan is that if you spend it on anything other than qualified education expenses, your account earnings are subject to income tax and a 10% penalty. There are exceptions, such as when the beneficiary receives a scholarship, veteran’s educational assistance, becomes disabled, or dies.
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Most states offer at least one 529 plan; however, the fees and benefits vary, such as the maximum contribution limit and investment options. You typically don’t have to be a state resident to participate in its plan. For instance, you could live in New York, participate in a Florida 529 plan, and use the money to pay for a school in California.
However, some states that collect income tax offer a tax deduction or credit on your state tax return for residents who choose an in-state 529 plan. That could add up to significant savings, depending on where you live. Therefore, the tax benefits of a 529 planopens pdf file vary depending on your home state, how much account growth you receive, and which plan you choose.
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Most 529 plans have high contribution limits, such as more than $200,000 or $300,000 per beneficiary. That allows you to save as little or as much as you need for your or a child’s education expenses from kindergarten through graduate school.
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While a parent-owned 529 plan is a component of federal financial aid calculations, it’s a relatively small amount compared to other accounts. For instance, savings owned by a future student, such as in a UTMA/UGMA custodial account or a Roth IRA, count more toward the Expected Family Contribution for financial aid.
A 529 beneficiary typically isn’t the account owner. That makes having a 529 plan an advantage for families and students who need financial aid to supplement savings because it won’t reduce their potential aid as much as other accounts.
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A 529 plan offers unique gifting features that make the beneficiary more likely to have enough education funds. Platforms like Pelican make it easy to create your 529 and encourage family members and friends to contribute to a student’s plan.
For instance, a child’s grandparents could add funds regularly over many years or make a lump sum contribution, which can be advantageous for their estate planning purposes.
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Everyone can use a 529 plan because there are no restrictions on annual income. Plus, unlike some education savings accounts, there’s no time limit or beneficiary age when you have to spend it. The funds can be used later if a child doesn’t go to college immediately after high school.
In addition, if a child decides not to go to college or doesn’t need all the funds, you can transfer it to a new beneficiary in your family with no taxes or penalty.
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If you have unused 529 funds but no different beneficiary can use them, cashing out is an option. However, as previously mentioned, you’ll owe tax on the earnings portion, plus a 10% penalty.
Another new option created by SECURE 2.0 called the 529-rollover-to-Roth-IRA begins in 2024. If your beneficiary has a Roth IRA, you can move a certain amount of unused 529 funds to it.
However, the 529 must be open for at least 15 years, and the lifetime rollover limit is $35,000 per beneficiary. Plus, any 529 contributions (and their earnings) made within the past five years can’t get transferred to a Roth IRA.
Note that the rollover Roth IRA must be in the beneficiary’s name, not the 529 plan. That means your child must have some amount of earned income to qualify for a Roth IRA in the first place.
For 2023, you can contribute up to $6,500 to a Roth IRA if you’re under 50 and have that much earned income. So, this tax-free rollover benefit only applies to working older children–but may give them an excellent head start on retirement savings.
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I mentioned that 529 funds can also be used for younger students, a relatively new benefit in the Tax Cuts and Jobs Act of 2017. It expanded qualified expenses to include tuition for kindergarten through high school for up to $10,000 per student annually. You can spend it on public, private, or religious school expenses for a child whether they attend college or not.
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Qualified education expenses for your 529 savings include tuition, room and board, books, supplies, required equipment, special needs services, and computer technology. Plus, you can include up to $10,000 for student loan repayments and costs related to registered apprenticeship programs.
However, 529 funds can’t be used to pay for a student’s education loan interest, extracurricular activities (like sports or clubs), transportation, health insurance, or cell phone. If you’re unsure if a fee is 529-qualified, check with your plan provider.
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As you spend 529 funds, keep physical or digital receipts to prove your distributions are equal to or less than the amount of your qualified educational expenses. Your 529 plan provider will send you and the IRS a copy of Form 1099-Qopens pdf file showing your annual distributions. As I mentioned, you typically also must pay an additional 10% penalty on the earnings portion if your distributions exceed your qualified education expenses.
You might pay your qualified expenses first and reimburse yourself from the 529. Be sure your 529 withdrawals and payments occur in the same calendar year; otherwise, a distribution may be considered non-qualified.
Another way to manage qualified expenses is to move money from a 529 to your bank account or authorize a 529 provider to make a payment. Getting funds upfront may be best when you have large bills, such as college tuition, and don’t have enough to cover it in your bank account before getting reimbursed.
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Once you open a 529 plan, set a goal to make regular contributions. Whether you contribute $10 or $1,000 a month, the sooner you get started, the easier it will be for you and your family to pay for college.
Why not invite other people to make 529 gifts and contribute for special events, such as a future student’s birthday or as a holiday gift?
Check out PelicanInvests.com for 529 plan resources and great ways to share your savings goals, encourage family participation, and hopefully make paying for college much easier.
This article originally appeared on Money Girland was syndicated by MediaFeed.org.
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