Paying for College

College is an expensive experience unlike anything else your child will undergo. In the United States, there is currently no limit on the dollar amount a college can charge for tuition. Colleges are spending more on administrative services and luxuries to compete for students; state funding for public colleges has decreased; and the demand for workers with college degrees remains high. While rising costs and the value of a college degree impacts enrollment for some students, it is hard to place a dollar value on the broad range of skills colleges teach students outside of their chosen field of study. These life skills include time management, adaptability, responsibility, and financial literacy. Thus, an investment in a college education offers never-ending benefits. Luckily, there are several ways to help fund your child’s college education.

529 Plans

529 Plans offer a tax-advantaged way to save for education. What’s more, these plans are not restricted to parents of college bound students. Rather, just about anyone can contribute to a 529 Plan for a beneficiary, regardless of their relation to the child. Following recent changes to the Free Application for Federal Student Aid (FAFSA), contributions to a 529 Plan made by grandparents, aunts, uncles, and others do not impact a beneficiary’s financial aid eligibility. Additionally, as long as the expenses paid for with funds from a 529 Plan are for qualified higher education expenses-books, supplies, and tuition-growth and earnings are tax-free for the plan owner. Due to special 529 rules, if you have extra cash to invest, you can accelerate five years of gift contributions into a single year provided you file the proper forms with the IRS. This may be beneficial when there is a benefit to getting a large amount of assets invested. Starting in 2024, unused funds that remain if a 529 is overfunded can be converted into a Roth IRA. The 529 account must be open for at least 15 years and it could take multiple years to transfer all 529 Plan assets to a Roth IRA due to income and contribution limits currently in place.

Scholarships

One of the best ways to help pay for a college education is through scholarships. Scholarships are awarded by many organizations, including schools, non-profits, and private companies. Scholarships can be awarded for a variety of reasons, including financial need, academic merit, and special talents or interest. Some scholarships are one-time and others are renewable per semester or school year. These financial aid awards are designed to help students pay for college and do not have to be repaid. Those interested in learning about scholarship opportunities should look to free resources like high school counselors, college financial aid offices, professional associations, employers, and the U.S. Department of Labor’s free scholarship search tool.

Loans

Many students borrow money to attend college. It is important when using student loans to consider them as part of a college financial package and not to reply on loans exclusively. Comparison of loan terms should be made in to determining which type of student loan is best for your student.

Federal Loans: The student will need to complete the FASFA after Oct 1 of their senior year to determine which federal loans are included in their financial aid offer. These loans are offered by the federal government and are available to both undergraduate and graduate students along with parents. Federal student loans typically offer lower interest rates, come with repayment options, and have fewer borrowing requirements.

Institutional Loans: These loans are offered by colleges and universities and are available to students enrolled in the school. Institutional loans do not offer the same benefits as federal loans and repayment options and interest rates vary by school. Such loans might be worth consideration if the student doesn’t qualify for federal student aid or has borrowed up to the yearly allotment.

Private Loans: In the event the student has exhausted all other funding sources, private student loans may the next best option to cover a student’s cost of attendance. Private student loans may offer higher borrowing limits compared to federal loans and may also be tax deductible. Unlike federal loans, private loans are not eligible for loan forgiveness nor income-driven repayment plans. Lastly, private loans carry the risk of not being discharged in bankruptcy and discharge upon the borrower’s death is not guaranteed which could result in this debt becoming part of the decedent’s estate.