According to Fidelity’s 10th Annual College Savings Indicator, parents want to cover 70% of college costs for their aspiring student. However, they’re only on track to cover 29% of costs as their child reaches college age.
The good news is that all is not lost. It’s possible to figure out how to pay for college, even if you’re getting a late start. Here’s how you can help finance a higher education for your child:
1. Save what you can now
Consider opening a 529 to set aside money today to benefit your student. As long as the money is used for eligible education expenses, the earnings won’t be taxed.
Your student doesn’t need to make withdrawals at the beginning of their college career. Instead, give the account time to grow by encouraging your child to put off withdrawing money until junior year.
Whether you use a 529 or some other account, the idea is to do what you can to build up as much in savings as possible. However, if you’re getting a late start with college savings, you might have to find other strategies to help your child pay for school.
2. Help your child apply for federal student aid
“Scholarships, grants, and federal loans in the student’s name should be the first options families look to,” said Joe DePaulo, the CEO and co-founder of College Ave.
Have your child fill out the Free Application for Federal Student Aid (FAFSA). Information from your FAFSA is sent to the schools of your choice and used to create financial aid packages.
Need-based government grants can help pay for college if you qualify. On top of that, filling out the FAFSA offers students access to the work-study program, which guarantees part-time work while they’re enrolled in school.
Finally, the financial aid package should include information about federal student loans. Federal loans don’t require a credit check, with the exception of PLUS Loans. Students without an established or strong credit history may find federal loans are easier to get.
If your family demonstrates financial need, your student could even qualify for Direct Subsidized Loans. With these loans, the government covers interest charges while your student is enrolled in school.
3. Encourage your child to pursue scholarships
Motivate your child to fill out scholarship applications. In some cases, schools award nonfederal need-based scholarships using the information in the FAFSA, with no extra application necessary.
It’s also possible to receive merit-based scholarships as a result of your entrance application. I was offered a merit-based scholarship because of my grades and my extracurricular activities. Your student could be offered the same deal, depending on the school.
Other places to find scholarships include local community organizations and websites, such as Fastweb and Scholly. The more scholarships your child applies to, the more likely it is that they’ll get some money to help pay costs.
4. Steer your child toward a lower-cost school
“Treat your college selection as a purchase and become as educated as you can,” said Mike Bink, director of college planning for Equivest, a financial service provider that helps families prepare for college. “Make sure you can understand how much you can really afford before starting to pick your schools.”
Bink suggested finding out how various schools on your list assign financial aid. That way, you can increase the chances of qualifying for what’s available.
Another strategy is to start off with community college. Community colleges are often much more affordable. My son is already planning on completing his first two years of higher education at the local community college in order to save money and reduce his costs.
5. Take on debt to pay for college
In some cases, deciding how to pay for college means taking on debt of your own. The federal government offers Parent PLUS Loans. These loans allow parents of dependent students to take on fixed-rate debt that can cover tuition and other qualified costs.
However, a Parent PLUS Loan isn’t always the best option. Depending on the lender and other qualifying factors, getting a private loan to help pay for your child’s education can make sense, especially if you’re eligible for a lower interest rate.
DePaulo said to carefully consider the realities of borrowing to pay for your child’s higher education. He warned against taking on debt if you already have a lot of your own obligations and borrowing more could put your financial situation at risk.
6. Cosign a private student loan
Maybe you want to help your child figure out how to pay for college, but you aren’t ready to directly take on debt. You can offer to cosign a private student loan for them instead.
“College students often don’t have enough credit history or income to get a private student loan on their own,” said DePaulo. “They usually need help from someone who has good credit and sufficient income to get approved.”
You can lend your good financial name to the cause. However, it’s important to understand that if your child doesn’t make student loan payments, you’ll be held responsible for the debt.
Don’t raid your retirement account
DePaulo warned against using money in your retirement account to pay for college. It can be tempting because your retirement account often has a large amount of capital available.
However, once that money’s gone, it’s hard to replace. “College lasts about four years, but retirement could be 30 years or more,” said DePaulo. “Taking from your nest egg or cutting down on your retirement contributions could mean your child will foot the bill for your living expenses in the future.”
Learn how to pay for college by using more than one strategy
Don’t limit yourself to one strategy, especially if you’re starting late. “A successful college funding strategy often includes multiple ways to pay,” said DePaulo.
Rather than getting caught up with one approach, he recommended filling out the FAFSA and then looking for other ways to pay for school.
Focus on scholarships, but also review private student lenders so you can choose one that’s likely to help close any funding gap you have.
Just because you’re starting late, it doesn’t mean you can’t help your child catch up.
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