If you’re a parent hoping to send your child to college someday, you’re probably well aware that higher education costs have skyrocketed over the past 10-plus years.
Tuition and fees for the 2022-2023 academic year averaged $10,940 at public colleges (for in-state residents), $28,240 at public colleges (for out-of-state residents), and a whopping $39,400 at private colleges. And the price tag for an undergraduate degree typically goes up every year. Any way you look at it, college is a huge expense for families.
The good news, however, is there are a number of ways to make college more affordable for parents, everything from tax-advantaged college savings accounts to merit- and need-based scholarships to federal student loans.
Smart Ways to Pay for College
What follows are four key strategies that can help you cover the cost of a child’s college education — without going broke.
1. Starting Early With a Savings Plan
There are a variety of accounts to help parents save for college. While you can simply put money aside each month (or year) in a regular savings account, there are advantages to using a savings vehicle that is specifically designed for college savings. Here are two to consider.
529 Savings Plans
A 529 savings plan is a tax-advantaged investment account designed to help save for future education expenses. Your contributions to the account are made with post-tax dollars but, as long as the money stays in the account, no income taxes will be due on earnings. When you take money out to pay for qualified education expenses, those withdrawals may be federal income tax-free — and, in many cases, free of state tax too.
While 529 plans used to be limited to higher education, the funds can now be used for kindergarten through grade 12, as well as certified apprenticeship programs and qualified student loan repayments.
💡 Quick Tip: You can fund your education with a low-rate, no-fee private student loan that covers all school-certified costs.
Coverdell Education Savings Account
Like a 529, a Coverdell Education Savings Account (ESA) is a tax-advantaged account designed to help save for a child’s future education expenses. Contributions are made on an after-tax basis, but earnings aren’t taxed. When you withdraw the money and use it for qualified education expenses, the investment profits are tax-free.
However, Coverdell accounts come with income and contribution caps. Contributions are capped at $2,000 per year, and you can only make them until your child turns 18. To open and contribute to a Coverdell ESA, your income must be below a certain limit ($110,000 for single filers; $220,000 for married couples).
Coverdell ESA funds must be withdrawn when the beneficiary turns 30, or rolled over to another eligible beneficiary in the family.
2. Looking for Ways to Get Free Money
When figuring out how to pay for your kid’s college, there are numerous resources available, including scholarships, grants, and other forms of financial aid. These sources of “free money” can provide significant assistance to students based on academic merit, extracurricular achievements, or financial need.
Your Free Application for Federal Student Aid (FAFSA) will automatically match you with any federal scholarships and grants you’re eligible for, but there are other types available. You can look for additional funding options on your own using a search engine like FinAid or SoFi’s Scholarship Search Tool.
You can also research various scholarships offered by corporations, foundations, and non-profit organizations related to your child’s interests and intended field of study.
In addition, your child also can check out the high school guidance department for any information, and you may want to make an appointment with a school counselor to get any tips that might help your search.
If your child has a college selected, funding information is usually available on that school’s website as well.
Recommended: How Do You Find Non-Academic Scholarships for College?
3. Considering an After-School Job
Encouraging your child to work part-time during high school or college can contribute to funding their education and teach valuable life skills. A part-time job provides them with their own income, reducing their dependence on student loans and parental contributions.
Many colleges offer work-study programs where students can work on campus or in community service roles while earning money for their education expenses. In addition, summer jobs or internships can be an excellent way for students to save for college during their break.
However, it’s important to strike a balance between work and academics to ensure that your child’s studies remain a top priority. You may need to help your child manage their time efficiently to avoid overworking themselves and compromising their academic performance.
A job won’t pay for everything, but it will pay for some things, and that could mean fewer costs to cover with savings or financing.
4. Researching Student Loan Options
With the high cost of getting a degree these days, you may not be able to avoid taking on at least some student loan debt. You and your child may want to take some time to research and understand all the student loan options out there — both federal and private — and how they work well-ahead of senior year.
The amount a student can borrow in federal loans will depend on their year in college, status as dependent or independent, and the type of loan or loans they take out.
Parents of dependent undergraduate students also can apply for Direct PLUS Loans to help pay for education expenses that aren’t covered by other federal financial aid.
Federal student loans usually have more benefits than loans from banks or other private lenders, so be sure to compare the benefits of each private student loan program, as well as the interest rates and terms.
For example, federal loans offer deferment and forbearance along with programs like Public Service Loan Forgiveness (PSLF) and income-driven repayment plans. Private lenders don’t usually offer such perks and protections. It’s generally recommended that students exhaust all federal loan options prior to borrowing private student loans.
While researching different options for private student loans, you may encounter different ways for you and your child to apply, such as taking on a private student loan yourself or acting as a cosigner for a private student loan.
There are, of course, pros and cons to both of those options, so it’s important to do your due diligence on the private lenders you may be considering. What benefits do they offer? What are their rates and terms? Is there any fine print?
If your child doesn’t qualify for enough federal student aid to cover the cost of attending college, private student loans may be a viable option to look into to close the gap.
💡 Quick Tip: Parents and sponsors with strong credit and income may find much lower rates on no-fee private parent student loans than federal parent PLUS loans. Federal PLUS loans also come with an origination fee.
The Takeaway
There’s no one-size-fits-all way to pay for college. Students and their families may end up using a blend of savings, scholarships, grants, work-study, and different types of student loans to finance their education. When looking at aid options, you may want to prioritize federal sources of aid before borrowing private student loans.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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