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 2024-25 academic year averaged $11,610 at public colleges for in-state residents, $30,780 at public colleges for out-of-state residents, and a whopping $43,350 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.
Key Points
• Ways to pay for your child’s education include using a 529 savings plan or Coverdell ESA, having your child apply for grants and scholarships, using cash savings or money your child has earned from working, and taking out student loans.
• Starting early with savings plans like 529 Plans and Coverdell ESAs can provide tax-free growth and withdrawals for qualified education expenses.
• Encourage your child to apply for scholarships and grants, which are forms of “free money” that don’t require repayment.
• Filling out the Free Application for Federal Student Aid (FAFSA®) is crucial, as it determines eligibility for federal aid programs, including grants, work-study, and loans.
• If additional funding is needed, Parent PLUS Loans offered by the U.S. Department of Education allow parents to borrow up to the full cost of attendance, minus other financial aid received. Parents and students can also apply for private 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 child’s college tuition. 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 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 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.
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.
Federal Student Loans
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 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.
Private Student Loans
Private student loans are loans offered by private lenders — such as banks, credit unions, and online financial institutions — to help students pay for educational expenses not covered by federal aid. These loans typically require a credit check and may need a cosigner, especially for students without established credit.
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.
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.
FAQ
What are 529 savings plans and how can they help with college expenses?
A 529 savings plan is a tax-advantaged investment account designed to help save for future education expenses. Contributions are made with after-tax dollars, but earnings grow tax-free, and withdrawals for qualified education expenses are also tax-free. Funds can be used for K–12 tuition, certified apprenticeship programs, and student loan repayments.
What types of financial aid are considered “free money” for college?
Scholarships and grants are forms of financial aid that don’t need to be repaid. They can be awarded based on academic merit, extracurricular achievements, or financial need. Completing the Free Application for Federal Student Aid (FAFSA) is essential to access federal scholarships and grants.
When might private student loans be a suitable option for covering college costs?
Private student loans can help fill funding gaps after exhausting federal aid options. They are offered by banks, credit unions, and online lenders, and terms vary based on creditworthiness. It’s important to compare interest rates, repayment terms, and borrower protections before choosing a private loan.
SoFi Private Student Loans
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Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
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