If you’re a parent who has always dreamed of sending your child to college someday, you’re probably well aware that tuition costs have increased pretty drastically over the past 20 years (although we’ll share some good news on that subject in this post!).
According to data reported in an annual survey for US News & World Report , the average cost of tuition and fees for the 2020 to 2021 school year was $35,087 at private institutions, $9,687 for in-state residents at public colleges, and $21,184 for out-of-state students at state schools.
Those are daunting numbers for some—even when factoring how tuition prices actually went down from the previous year.
So what can you do now to prepare for this looming expense? Here are a few ways to finance college:
Smart Ways to Pay for College
When you know that paying for kids’ college may be challenging, here are ways to save and otherwise pay for education expenses, even if you think you can’t afford the costs of college.
1. Starting Early With a Savings Plan
There are a variety of accounts to help people save for college. It could be something as simple as a savings account to which both you and your child can contribute regularly. Or it’s possible to open a tax-advantaged 529 savings plan and invest that money.
529 Savings Plans
Much like a Roth IRA, 529 plan contributions are post-tax (although some states do offer income tax deductions or tax credits for contributions); but when the money is withdrawn and used for qualified education expenses for the designated beneficiary, the earnings are tax-free.
Because it is an investment vehicle, a 529 plan does come with some risk, so you may want to discuss this option with a tax professional and/or financial planner. They can also answer any additional questions you may have about the different types of 529 plans that are available.
Coverdell Education Savings Account
A Coverdell Education Savings Account is another tax-advantaged investment account worth exploring. Like the 529 plan, the money in the account grows tax-deferred, and when it’s used for qualifying expenses, it can be withdrawn tax-free. Unlike the 529, however, there are income limitations for a Coverdell account.
2. Looking for Ways to Get Free Money
When figuring out how to pay for kids’ college, the resources are out there. One starting point is to fill out the Free Application for Federal Student Aid (FAFSA®) together with your child.
Or, if you aren’t quite there yet, you may be interested in checking out the FAFSA4caster to get a free early look at your child’s eligibility for federal aid, including an estimated Federal Pell Grant amount (if any) and Federal Work-Study amount (based on the average nationally).
It’s generally recommended that parents and their children investigate the many types of scholarships available. Scholarships aren’t just for athletes and academic stars; there are acting, dancing, and other area-of-interest scholarships; civic scholarships; scholarships for those with certain diseases and disabilities—even fly-fishing scholarships.
Related: How Do You Find Non Academic Scholarships for College?
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 son or daughter already has a college selected, funding information is usually available on that school’s website, as well.
3. Considering an After-School Job
You and your buddies who had jobs in college could probably debate for hours the pros and cons of asking kids to work their way through college. That said, when figuring out how to finance college education, don’t overlook this avenue.
Yes, it’s a time suck, but it can help with organizational skills; it can provide a real-world view of what it’s like to juggle employment and other responsibilities; and federal education data show that students who work part-time, up to 12 hours a week, get better grades than those who don’t work at all.
But here’s the true bottom line: Student loan debt is now the second-highest consumer debt category—behind only mortgage debt, and higher on the list than both credit cards and auto loans.
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 student loans.
4. Researching Student Loan Options
With the high cost of getting a degree these days, it’s unlikely you and your child will be able to avoid taking on at least some student loan debt. Taking some time to research all the student loan options out there—both federal and private—and how they work could be helpful in understanding which options work best.
The amount a student can borrow in federal loans will depend on his or her year in school, status as dependent or independent, and the type of loan or loans obtained.
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 the length of the loans available.
For example, federal loans offer deferment and forbearance along with programs like Public Service Loan Forgiveness (PSLF) and multiple income-driven repayment plans when the time comes.
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 giving some thought to whether you’re willing to act 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.
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 aid like student loans to finance their education. When looking at aid options, prioritize federal sources of aid before borrowing private student loans.
Those interested in borrowing private student loans may want to consider options available at SoFi, where both private parent student loans and undergraduate student loans are available. SoFi private student loans have no fees and offer a variety of different repayment options to fit your budget.
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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 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.
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