How to Help Your Child Pay for College — Without Student Loans

 September 11, 2020
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If you’re wondering how to help your child pay for college, you might be focused on helping them avoid student loan debt.

Yes, paying for college without loans is possible — and by starting to save, searching for gift aid and making the financial aid process a collaborative effort, you can do that just that.

Here are six excellent ways to pay your child’s college — without racking up debt.

1. Choose a way to save — and start saving
2. Hunt for grants and scholarships
3. Encourage your child to participate in the process
4. Teach basic personal finance
5. Consider community college and state schools
6. Ask friends and family to contribute

Plus: Paying for college without loans is possible

1. Choose a way to save — and start saving

If you feel that you can’t afford college for your child, starting to save is key.

According to Melissa Sotudeh, a certified financial planner and director of advisory services at Halpern Financial, the best way to get into the habit of saving is to make it a line item on your monthly budget. Wherever you start, try increasing your contributions periodically as you gradually get on more solid financial ground.

“At $25 a month, you’re definitely not going to be able to cover all four years of even a state school, but what you might have is an amount that will bring even a reasonably priced university into the realm of possibility, and lower what potentially the student might have to borrow,” Sotudeh told Student Loan Hero.

Consider these powerful savings vehicles.

529 plans IRAs

When it comes to bulking up your kids’ college funds — and cutting your dependency on student loans — picking the right 529 account is generally the best option because it allows you to put away money for college that will grow tax-free. You also won’t be hit with taxes when the time comes to cash in.

“If there’s anything I can stress to parents, it’s the earlier [you start contributing] the better, because the longer you have the money in there to compound is a tremendous advantage to you as a parent,” said Paul Sydlansky, a certified financial planner and founder of Lake Road Advisors. “If you have the ability to put a large lump sum in when the child is born, that’s going to make such a larger difference than playing catch up.”

The money you put into a 529 plan can be used for a number of qualifying education expenses like tuition, books, and room and board. And if your child ends up getting a scholarship, that money isn’t lost. Sydlansky said you can either put their 529 account into another child’s name or pay a 10% penalty on the growth and take back the money.

These types of college savings plans vary from state to state, but some states offer an additional tax benefit. In Arkansas, for example, a portion of 529 contributions are tax-deductible.

Your retirement savings are, well, for retirement. But if you’re in a pinch, Individual Retirement Accounts (IRAs) could help your child avoid student loans.

Under normal circumstances, pulling money out of a traditional IRA before age 59 and a half translates to a 10% penalty — plus, you’ll also be on the hook for paying taxes on that money. Roth IRAs are different, in that they’re funded with after-tax dollars, so you can actually withdraw your contributions at any time, tax-free — unless you tap your earnings early, in which case you’ll be slapped with a 10% penalty.

For both accounts, you can sidestep this penalty if you use your distributions for qualified higher education expenses including tuition, books, supplies and room and board. You just have to spend it on yourself, your spouse, your kids or your grandkids, and the student has to be enrolled in a degree program at least half time.

IRAs have one other built-in benefit: If your child scores enough in grants and scholarships and you don’t need your IRA to pay for college, you’ll have more money left over for retirement. Unlike 529s, you won’t have to pay a penalty to draw on those funds for non-education expenses later down the road.

Regular savings accounts Coverdell ESA

You won’t earn the best return parking your kids’ college cash in a regular savings account; the highest yield you can expect these days is 0.80%.

You’ll also miss out on the tax benefits of a 529 or IRA.

However, there is one major perk — you can access it whenever you want, penalty-free. And if you’ve been steadily contributing to it over many years, chances are you’ve built up a solid stockpile of cash that can be used for any college expenses you want. No restrictions.

If you earn less than $110,000 per year ($220,000 if you file your taxes jointly), a Coverdell Education Savings Account (ESA) can help maximize your savings efforts. You can contribute up to $2,000 per year, which will grow tax-free. You also won’t be taxed on distributions, as long as you don’t withdraw more than your child’s education expenses. But if you tap this money for non-qualified expenses, you’ll have to pay income taxes on the earnings and a 10% penalty. Since the contribution limit does cap out, Coverdell ESAs might make for a great supplementary savings vehicle that you kick into on top of, say, a 529 plan.

One other note: If the money is not used by the beneficiary’s 30th birthday, it will need to be distributed within 30 days. If not, you’ll have to take a non-qualified distribution of the leftover money. To avoid this, you could change the beneficiary to another sibling or relative, or roll the money over to a 529 plan, which doesn’t have an age limit. (FYI, the age limit doesn’t apply to special-needs beneficiaries.)

2. Hunt for grants and scholarships

When you’re wondering how to pay for your kid’s college, there’s nothing better than money for school with no strings attached.

Grants tend to be gift aid that’s based on financial need. Scholarships, on the other hand, are usually merit-based.

According to Mark Kantrowitz, publisher and vice president of research at, the best place to find them is online. Fastweb is one of his favorite scholarship search tools.

“Focus on free,” Kantrovitz told Student Loan Hero. “If you have to pay money to get money, it’s probably a scam.”

Consider scholarships to help pay for your child’s college costs…
High school students
Current college students
First-generation students
Asian students
Black students
Latino and Hispanic students
DACA students
Minority students
Community service
Military service
Professional development
Single parents
Single moms
Nursing school
Medical school
Criminal justice
Computer science
Studying abroad in Japan
Studying abroad in Canada

The internet isn’t your only resource. Kantrowitz pointed to your high school counselor’s office or college financial aid office as a great place to search for scholarships. The same goes for outside organizations: The Florida Parent Teacher Association (PTA), for example, doles out $2,000 scholarships to qualifying high school seniors.

Your child doesn’t even have to be a teen to start applying for gift aid. Youth Service America’s Everyday Young Hero Awards and the Sodexo Stop Hunger Foundation’s Stephen J. Brady scholarship program are examples of opportunities for students as young as 5.

3. Encourage your child to participate in the process

If you go it alone trying to figure out how to pay for college for your child, you might not last long. Applying for gift aid, for example, can feel like an all-encompassing effort. Instead, make it all-hands-on-deck.

Encouraging your child to apply for scholarships on their own time is one way to get your student involved. It’ll cut you some slack, and empower them to take on the tall task of paying for college without loans.

Weigh AP courses and dual enrollment Consider part-time work

Advanced Placement (AP) courses allow high school students to take college-level classes, essentially reducing their future college course load — and shaving their tuition costs.

To actually earn college credit, the student usually has to score a 3 out of 5 on each AP exam, which costs $95 a pop. AP requirements vary from high school to high school.

Dual enrollment is another option that lets students take college classes while still in high school. Requirements, which usually include a GPA minimum, are often set by the high school and the state.

“One benefit of dual enrollment is you can use 529 money to pay for some of the cost, whereas AP tests you can’t,” said Kantrowitz.

Dual enrollment courses can typically cost up to $400.

Just be sure to check with the college you plan on attending to see if your dual enrollment or AP credits will indeed transfer over.

“If you want to reduce your debt, the best way to do that is winning scholarships and saving for college,” said Kantrowitz. “Every dollar you save, and every dollar you win, is a dollar less you’ll have to borrow.”

In other words, every little bit helps. Socking away your earnings from a part-time job certainly won’t cover all your college expenses, but it could make a nice little dent. Some companies even offer tuition assistance: For part-time employees, Aetna will pay up to $2,500 for courses that are for a degree program or otherwise related to your job or career.

Fill out the FAFSA

The earlier you fill out the FAFSA (Free Application for Federal Student Aid), the better. Many colleges and states use it to grant financial aid. In fact, roughly 75% of full-time students end up receiving grant aid to help pay for college, according to the 2016 National Postsecondary Student Aid Study (the most recent edition).

While you’re at it, consider completing the CSS Profile, an alternative financial aid form preferred by some schools.

4. Teach basic personal finance

One of the best ways to pay for your kid’s college is to actively teach them financial independence. A 2020 Council for Economic Education study found that students who graduated high school in states that mandated financial education were more likely to apply for college financial aid.

For younger kids, Sotudeh recommended teaching them the concept of spending, saving and giving. Whether they receive four quarters or $100 — spend some, save some and donate some. It’s an exercise designed to reinforce delayed gratification and curb impulsive spending.

“To teach [high school kids] about credit cards, I’d show them how much more something costs if they have a credit card and what the percentage is versus paying for it now,” she said.

Budgeting is the other side of the coin. Sotudeh suggested sitting down with your kids as soon as they begin earning an allowance or money from an after-school job. How much are they bringing in? Do they have any bills? The idea is to lay the foundation that you can’t spend more than you make; something that’ll come in handy once they’re living on their own.

When they’re preparing to leave the nest for college, crunch some numbers with them so they can see exactly how much further their money will go with a little financial forethought. Buying used textbooks, meal planning and carpooling to class can help them start paying for college without loans.

5. Consider community college and state schools

Parents paying for college aren’t always aware of the option to attend lower-cost colleges and universities. After all, your son or daughter might be stuck on a dream school that costs a pretty penny.

On average, though, full-time students at public two-year colleges receive enough grant aid and federal tax benefits to cover tuition and fees, according to the College Board. Beginning your higher education journey at a community college and knocking out those general education requirements before transferring to a state school could be a powerful way to reduce your college expenses.

If you’re intent on a direct path to a four-year university, Kantrowitz recommended setting your sights on an in-state public college.

“You can get just as good a quality education, but for a quarter to a third of the price of a private four-year college,” he said.

6. Ask friends and family to contribute

After all these strategies, you might still be saying to yourself: I can’t afford college for my child.

If that’s the case, don’t be shy about asking for help.

Of all the ways to pay for college without loans, this is the most collaborative: Invite family and friends to play a role in your child’s future.

“What I’m seeing now is people setting up these [529] accounts, then alerting families at gift-giving occasions that they can contribute directly to the plans,” said Sotudeh.

It’s something your child will be grateful for come high school graduation. The ultimate savings goal, according to Sotudeh, is roughly 80% of estimated college costs. Another option is turning to crowdfunding when you don’t have cash for college. Search for “college funds” on platforms like GoFundMe and you’ll see thousands of campaigns, particularly for families that have lost a loved one.

Setting up one for your child directs friends and family to an easy way to donate.

Paying for college without loans is possible

College grads are burdened with more student debt than ever before. Sixty-nine percent of 2019 graduates took out student loans to help cover the bill, and their average debt came in at $29,900, according to our student loan debt statistics.

The upside is that learning how to help your child pay for college will help your case. Yes, scholarships and grants can greatly reduce your debt burden. Smart saving is equally important, as is getting your children involved. Once your child is on campus, also consider your eligibility for the American Opportunity Tax Credit.

No, all of this doesn’t come cheap, but some intentional thinking can go a long way toward helping parents pay for college.

If borrowing becomes a necessity, however, it’s still possible to avoid student debt. Consider ways to pay for college while avoiding financial ruin.

Andrew Pentis contributed to this report.

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