For many, going to college means increased opportunity, specialized careers, and learning skills that last a lifetime, and all those things come with a hefty price tag. But regardless of who is paying for your education, it can often bring a wave of financial stress and anxiety.
According to Experian, U.S. citizens owe over $1.5 trillion in student loan debt, averaging approximately $39,000 in debt per student. So, you may be wondering…how are you going to pay for college?! Don’t worry, we have solutions that can break down financial barriers and help find a solution that’s right for you.
When to Start Saving for College and How Much Money You Need
The average cost to attend a four-year college or university for one academic year can range from $20,000 to $47,000, depending on if it’s a public or private school. And that’s not all. In addition to tuition, you also have to pay for room and board, books and supplies, transportation or parking, personal expenses, activities, and more. Combined, your total cost for a degree can reach $100,000 or more.
So, when should you start saving for college? Simply put, the earlier the better. If you’re saving for your child’s education, then you should plan on putting approximately $5,000 aside every year for 18 years. If you’re saving for yourself at a later stage in life, then you may need to save more. Even small amounts, like $20-50 per month can add up to thousands over the years, putting you or your child in a better financial position when it’s time to go to school.
The Department of Education has a net price calculator to help you determine exactly how much college will cost. Simply select the college or university you or your child will be attending and fill out the required information. A results page will show totals including tuition, room and board, books and supplies, and other estimated expenses, as well as available grants and scholarships for you or your student.
Types of College Savings Plans
There are multiple college savings plans available to you past a standard savings account at your financial institution. Some of the most common plans include:
- Coverdell Education Savings Account (ESA) – This is a tax-deferred trust account through the U.S. government that assists families with educational expenses. With this account, you can contribute money that appreciates over time and without taxation until the student is enrolled in an educational institution.
- 529 College Savings Plan – This plan involves investing after-tax contributions in stocks, bonds, or other investment types that will be used for qualified educational expenses such as tuition, room and board, or required textbooks.
- 529 Prepaid Plan – This plan is tax-advantaged and can be used for tuition costs. By making contributions into this type of account, you secure the current tuition price for you or your student without being affected by rising costs later.
- Uniform Transfer/Gift to Minors Act (UTMA or UGMA) – This plan is a good option if you don’t qualify for a Coverdell ESA or 529 Plan. Like a mutual fund, these accounts are controlled by a guardian until the beneficiary turns 21 years old for UTMA or 18 years old for UGMA. Once the account is controlled by the beneficiary, there are no restrictions to how it can be used, though you can encourage your child to use it for higher education.
- Traditional and Roth IRAs – These tax-advantaged accounts allow you to save through investments such as stocks, bonds, and mutual funds. While the general rule restricts account owners from withdrawing funds before the age of 59½, participants can withdraw money from a Traditional or Roth IRA to pay for qualified higher education expenses for themselves, a child, grandchild, or spouse.
Tips and Tricks
Like any good savings plan, there are some tips and tricks you and/or your child can use to contribute additional funds for college:
- Get a Job – Whether you’re getting a raise in your career or taking on an Uber or DoorDash gig, every bit helps. Make sure you establish ground rules for the additional funds, such as adding 100% of the earnings to your college fund or setting it aside for school activities and supplies.
- Live Off Campus with Roommates – While living on campus is extremely convenient, it comes at a high price. To save additional funds, look into off-campus housing and split the rent with roommates. The money you save on housing can be used to pay for tuition, books, activities, or an on-campus parking pass.
- Use Budget Apps – Students today are lucky to have financial tools at their fingertips. With apps like Mint, You Need a Budget, or Spendee, users can connect their bank accounts and track savings, spending, loans, bills, and more. To learn more, read our blog post about financial apps that will make tracking your finances easy and stress-free.
- Use a Rewards Credit Card – Using a credit card can be a slippery slope, but if you’re financially responsible, they can be extremely beneficial. If you’re a student, apply for a low-limit rewards credit card that will be used for necessities (i.e., things you have to purchase, like food, toilet paper, and other household essentials). Over time, you will accrue monetary rewards on your card that you can use to pay down an account balance, buy gas, and more.
- Ask About Tuition Reimbursement – Some employers offer comprehensive benefits like tuition assistance to their full-time or part-time employees. Ask your company’s HR department if this is offered, and if it is, explore the benefit options. Some requirements may include maintaining a specific GPA, limited reimbursement amounts, taking a specific number of classes, and more.
Resources for Students
Another way to pay for college is by applying for various types of financial aid:
- Federal Financial Aid – When applying for college, you’ll be asked to fill out a file for FAFSA (Free Application for Federal Student Aid). FAFSA will use the information about you and your family’s finances to determine how much aid you’re eligible to receive from the federal government, typically in the form of grants, subsidized loans, and unsubsidized loans.
- Scholarships – Places like non-profits, local businesses, or employers may offer local, state, or national scholarships. While scholarships are usually highly competitive, they can make a big difference. Most scholarship competitions require an essay or video submission, so get creative with each one to increase your chance of winning.
- Grants – Applying for grants through federal or state governments, colleges or universities, and non-profits can be a great way to pay for school. While the eligibility requirements for each may vary, if selected, you receive free funds to be used for educational expenses such as tuition or books and supplies.
- Student Loans – Not everyone has thousands of dollars lying around to pay for school, and if that’s you, then applying for student loans can help you pay for school. Before taking on a loan, make sure you understand the requirements of each so you can make a smart financial decision. Student loans come in many different forms, including subsidized loans, unsubsidized loans, and private loans. Learn more about the different loan types from the U.S. Department of Education’s Federal Student Aid office.
Rising costs of higher education make financial planning not only beneficial but necessary. Explore the various options available to help save money for you or your child’s education and invest in plans that work for you and your family.
For ongoing financial tips and tricks, visit our blog today.