It’s no secret–education is expensive. According to The College Board the average cost of tuition and fees for the 2015-16 school year was $9,410. But that’s just for in-state students attending public universities. If you’re an out-of-state student attending a private university, all of a sudden that number jumps to $23,893.
Multiply that by four years (or more) and by the number of kids you have, and you can see how paying for college is one of the biggest financial burdens of your life. But you don’t have to be overwhelmed! There is help. Let’s walk through a few tips to make sure your entire financial life isn’t strapped with paying for college.
Save early, save often
The sooner you start saving for your kids’ education the better. College may seem like a long way off for your newborn, but the longer you wait to save, the more painful paying for it will be. Plus, you have to consider pre-college education. Sending your child to a private school prior to college will only add to your cost.
So how do you do save? There’s several ways. A common method is opening a 529 account in your child’s name. 529 plans are tax-free investment accounts whose specific purpose is to save for college. You deposit money into the account, and as long as you use the earnings from this account to pay for college, you’ll never have to pay taxes on any of it.
There are many types of 529 plans and they all come with different fine print. So make sure you know what kind of fees and stipulations are involved before opening an account.
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Another way to save is through a Coverdell account. Coverdell’s are very similar to 529’s with one key difference. Whereas 529’s have to be used to pay for college, Coverdell’s can be used to pay for any type of education.
And just like 529’s, or any account really, know the terms and conditions before you sign. With Coverdell accounts you can only contribute up to $2,000 per year per child, and your gross income has to be below a certain threshold.
Custodial accounts, like UGMAs or UTMAs, allow you to gift money to your child. This money is locked in and inaccessible to your child until they reach adulthood. However, once that moment comes, the money is theirs and they can do with it what they please.
Paying for college
Hopefully, you’ll have used some of those saving methods to get ahead, but when the time comes to pay for college, that may not cover all of it. Let’s talk about paying for your own education or your child’s.
One way is with a prepaid college tuition plan. These allow you to pay for a part of tuition years in advance at the current price. By getting a prepaid plan you’re protected in part from price increases, but you’re also committing to paying for college early. But check the terms and restrictions. Some might only be available for in-state public schools.
There are many types of loans you, or your child, can take out to help pay for college. The most popular is the Federal Stafford Loan, in which the government will loan you up to $31,000 over four years. All Stafford Loans come with fixed interest rates that have to be paid. Students that qualify for a subsidized loan won’t have to accrue or pay interest while they’re in college, while unsubsidized loans begin accruing interest from the moment you take out the loan.
You can also apply for a private student loan. These are offered by privately owned banks and lenders, who each have their own loan products. Often times these are more expensive than federal loans because their interest rates are higher and increase over time.
Applying for scholarships also helps. Look for ones through your high school, community, online, and from the financial aid office at the school you have been accepted into. They can be awarded for academics, community service, extracurricular activities, ethnicity, writing/speaking ability, athletics, and so much more. The applications may require an essay or another type of qualification, but the effort will be well worth it when you are given college funds that do not have to be paid back.
Search for scholarships and learn more about financial aid from the U.S. Department of Education’s website at https://studentaid.ed.gov. The earlier you start planning and saving for higher education, the easier it is going to be later when you or your child attends.