Wednesday, September 28, 2022

How To Pay For My Child’s College

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Use Your Retirement Savings

How Should I Pay For My Children’s College?

The options above are often the wisest choices, but you do have a couple other choices using retirement savings or home equity. While not ideal, this approach might be worth considering in some cases.

If you have some wiggle room with your retirement accounts and arent worried about your future finances, you could tap into your retirement account to help pay for college. This option is only available to parents under the age of 59½ with an IRA account. You will not face early withdrawal penalties but might have to pay taxes on the amount depending on whether you have a traditional or Roth IRA.

This option isnt available with a 401, but you might be able to get a 401 loan. Check with your retirement accounts for your options and what it would cost you to do this.

How to use your retirement to pay for college

Choosing this option when paying for college will depend on what retirement account you have set up and its limitations for early withdrawal. Its helpful to reach out to the institution managing your retirement account to find out exactly how to request a withdrawal to pay for your childs college education.

Your human resources advisor might also be able to guide you on the process if your account was set up by your employer.

Can You Be Successful Without Finishing College

Yes, its possible to succeed without a college degree. But with so many programs designed to take you from having no experience in a field to being highly-skilled and job-market ready, having a college degree offers a clear advantage. Success, for many adults, starts the day they get that bachelors degree.

Do I Need All Transcripts When Transferring Colleges

3) College transcripts As a transfer student, you will need to send transcripts for all colleges youve attended, even if there was a gap in your education or you didnt earn a degree at the institution. Some colleges require you to apply to your major in addition to applying for general admission.

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How To Set The College Savings Goal

Since 3 x 1/3 = 1, that suggests that the college savings goal should be equal to the complete cost of a college education the year the baby was born. Saving this amount will yield enough money to cover about a third of the future college costs.

You might not be able to predict the specific college in which your child will enroll 17 years from now, but you might be able to predict the type of college, such as an in-state public 4-year college or a private 4-year college.

The College Boards annual Trends in College Pricing publication reports an average cost of attendance in 2017-2018 as follows:

  • Public 4-Year College : $20,770
  • Public 4-Year College : $36,420
  • Private Non-Profit 4-Year College: $46,950

Assuming that the current inflation rates of 3.1%, 3.2% and 3.5% continue, the complete cost of a college education for this years college freshmen will be about $87,000, $153,000 and $198,000.

FREE TOOL: Calculate the cost of sending your child to college

Learn As Much As You Can About The Cost Of College

Should I Use Retirement Savings to Pay for My Childs ...

Peterson found that online resources were a wealth of information on:

  • the cost of public vs. private universities,
  • costs for in state vs. out of state,
  • costs for community college/trade school vs. four-year schools, and
  • how to qualify for financial aid and merit scholarships.

Some schools may also offer how to pay for college meetings for parents and teens.

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Cost Of Going To College

College costs tend to increase at about two times the rate of inflation each yeara trend that is expected to continue indefinitely. Heres what you can expect to pay for each year of tuition, fees, and room and board by the time your kids are ready to head off to college :

Estimated Annual Future College Costs
Current Age
$104,049 $136,712

Note: Want to see an estimate of how much it will cost to send your child or grandchild to college? Use the College Cost Calculator at the College Savings Plans Network.

Keep in mind, these numbers represent a single year of costs the number of years your child attends college will depend on the degree they are seeking. While many students will qualify for financial aid, scholarships, and grants to help cover college costs, there are still a number of ways to further reduce college costs.

One of the easiest ways is to invest the money youve set aside for your child or grandchilds college years in tax-smart investment vehicles. These plans and accounts allow you to efficiently save for your child or grandchilds education while shielding the savings from the IRS as much as possible.

Question : What Are Your Childs Career Plans

Even if youve already saved up money to send your kids to college, that doesnt necessarily mean it makes sense to spend it that way. College is only a good investment if your kids will use that degree to pursue a career where it really makes a difference.

A college degree is a bigger advantage in some fields than in others. Health care jobs, such as pharmacy and nursing, have lots of job openings for new graduates. Engineering and agriculture majors, and some education majors, are also likely to get good jobs, according to Kiplinger.

But other majors, such as literature and the arts, dont offer a clear route to a high-paying job. Your child could spend four years at college only to end up working in retail anyway. If your child is passionate about art, perhaps they could redirect that passion into a more lucrative field like art education. However, if they wont even consider a degree that could pay for itself, maybe college isnt a good investment.

Remember, too, that some careers dont require a degree. If your child is drawn toward hands-on work, such as auto repair, maybe a trade school or an apprenticeship would be a better value. A military career can start right after high school or with a free education at one of the service academies.

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Know Your Savings And Investment Options

A combination of investment vehicles and financing methods will probably work best when you’re trying to come up with the money for your child’s college education. Be sure to take advantage of any tax-deductible or tax-deferred methods that you’re eligible for.

Some of the best investment options for college savings include:

Talking With Your Child

Ask Admissions: How do I pay for my child’s college tuition?

If you’ve exhausted all of your resources after your child has applied for grants and scholarships and you still don’t have enough for tuition, student loans might be the right option.

In most cases, a student loan will be in the child’s name, so it’s important to talk about this responsibility with them. Look at the cost of tuition and the types of student loans available. Go over potential monthly payments and discuss how interest might impact the total cost of the loan. Decide together what might be the best financially for your family.

FAFSA® is a registered trademark of the US Department of Education and is not affiliated with Discover Student Loans.

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Best Ways To Save For College

Instead of saving in a traditional bank account, there are plenty of options for investing your money so you can take advantage of compound returns. An important college savings caveat is that, depending on the strategy you use, investment earnings will add to your total savings.

A 529 plan, for instance, is a tax-advantaged education investment account that individual states offer. Some states give residents a tax break for using their home account, but you can choose any plan you like. As you would in a 401 or an individual retirement account, you can typically choose your own funds to invest in or opt for a mix of funds targeted toward your childs anticipated college start date. That will ensure your investments arent too risky or too conservative.

If you save each month in a 529 plan, you could contribute less per month and save the same total amount when your child goes to college. In our example from above, youd have to save $209 per month for 13 years to reach about $44,000 in savings, if your investments receive a 6% average annual returna reasonable goal based on historical stock market returns. Thats about $96 less per month than if you didnt invest your money.

Scholarships: Nothing Beats Free Money

Before you start looking into ways to reduce your own costs, see how much you can get others to pay for your child’s education. There are large numbers of scholarships available to students, and you can find scholarships that are tailored to students of all types. Some scholarships aim to reward the students with the best academic prospects, while others are geared toward athletic standouts. You can also find scholarships for students pursuing various careers and fields of study, from the performing arts to engineering to pediatrics. Some organizations offer scholarships to students with demonstrated financial need, while others make a point of not judging on the basis of household income.

Scholarships are available through many providers, including businesses and nonprofits of all sizes. Some schools offer scholarships directly, so it’s always smart to ask prospective schools for a list of available scholarships. In some cases, outside scholarship providers will offer their gifts to students seeking to attend a particular school or group of schools. However, there’s also a host of unaffiliated scholarship providers that make funding available regardless of which school you choose.

Some scholarships require nothing more than a brief application and a short essay, while others require hours of work. At the same time, the more demanding scholarships tend to come with greater rewards. The amount on offer can range from three to five figures.

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Meeting In The Middle

There are huge advantages to both helping pay for a students education and letting college students fend for themselves. Perhaps, the better solution is to meet somewhere in the middle. Were huge advocates of financial balance with pretty much every financial decision. This decision doesnt have to be either/or. It can be and meaning that you can help pay for some college , and the student pays the rest. Theres no one size fits all here.

But by teaching children money management at a young age, parents can prepare their children to make smart decisions like only taking out student loans for education rather than financing their lifestyle. And parents can still pitch in to cover the cost of education and leave a smaller portion for their college aged kids to pay.

Its important to remember though: if parents dont have the capabilities to help their children financially, they shouldnt. But parents should have open and honest discussions with their student early on, so that there are clear expectations come senior year of high school.

Start By Taking Baby Steps

Why I Pay to Volunteer in my Kids

You dont have to save the full cost of college. If you set your goal to save 100% of your childrens future college costs, you may get sticker shock. The sheer magnitude of the cost of attendance might cause you to give up in dismay.

Instead, set your sights a little lower and break up the college savings goal into baby steps, such as how much you need to save per month instead of one big lump sum. If you start saving from birth, the monthly contribution is about 0.3% of the college savings goal. For every $10,000 in college costs, you need to save only about $25 to $35 per month from the day your baby is born.

FREE TOOL: Calculate how much you should be saving per month

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Free And Affordable Colleges

Students can also keep their college costs down by choosing a school thats more affordable. One common choice is to go to a community college for the first two years. At these schools, Demos found, the average net price is typically lower, ranging from $4,188 to $15,149 per year.

Students can lower their costs even more by living at home while attending a community college. That way, they only need to pay for tuition and fees, which cost an average of $3,440 per year, according to the College Board. Thats well within the amount students can earn through part-time and summer work.

Some colleges arent only affordable theyre actually free. All across the country, there are colleges that offer free tuition and sometimes room and board as well to students who meet their strict criteria.

The best-known free colleges are the military service academies, such as West Point and the U.S. Naval Academy. At these government-funded schools, all students attend free of charge. In exchange, they pledge to serve five years in the military after they graduate.

Other free colleges, such as Berea College in Kentucky and the College of the Ozarks in Missouri, require students to work on campus in exchange for tuition. Still others offer free tuition to students who want to train for a specific field, such as music, the ministry, or naval engineering. And in several states, community colleges offer two years of education for free to any student whose grades are good enough.

What If I Cant Pay For My Childs College

Not every parent can afford to send their child to college. And thousands of students go to college every year without parental assistance thanks to student loans. I was one of them. I had no college fund, and I paid for my entire 4 years at Notre Dame through scholarships, work-study programs and student loans.

The Federal government is one of the primary providers of student loans in the United States. When looking to obtain student loans, you should exhaust ALL federal options first, before taking on private loans. Federal loans offer flexible repayment options, loan forgiveness porgrams for some future careers, as well as subsidized loans, none of which are available via private sources.

Stafford loans offered by the government come in two types: subsidized and unsubsidized. Subsidized Stafford loans have no payments until after you graduate and the government pays interest while you are in school. You must have demonstrated financial hardship with family income less than $50,000 annually to obtain a subsidized Stafford loan. There are annual loan limits and total debt caps for undergraduate studies.

Unsubsidized Stafford loans also defer payments until after you graduate, but you are responsible for all accrued interest. These are available to all students, and also carry annual limits and total debt limits for undergraduate studies.

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How Do Middle Class Parents Pay For College

The California State Legislature enacted the Middle Class Scholarship to make college more affordable for California’s middle class families. The Middle Class Scholarship reduces student fees at the California State University and University of California by up to 40 percent for middle class families.

How Much To Save For College

Should I Pay For My Kid’s College Or Make Them Do It?

Unless your familys income is at the very top of the national average, your child likely wont have to cover the full published cost of attendance. In 2017-18, 86% of full-time first-year undergrads at four-year schools received some type of financial aid, according to the National Center for Education Statistics.

The average net price of a college is a more reasonable way to estimate how much to save. The net price is how much a student pays after taking into account any grant aid, which doesnt need to be repaid. The federal, state and school grant money your child is eligible for is determined using the information in the Free Application for Federal Student Aid and any state- or school-specific financial aid applications.

The grant aid your child receives will depend on your familys financial circumstances when you fill out these forms. Your income, the number of children you have in college at the same time and certain types of assets will all factor in. But you can use average net price numbers to set your savings goal.

Here is the average net cost of attendanceincluding tuition, fees, room, board, books, supplies and transportationfor full-time students across different college types, according to The College Board:

Type of college

$33,220

$132,880 over four years

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How To Get Your Child Involved In Saving For College

Once your child is ready, you can get them involved in saving for college. They will need to be old enough to understand the concept of college and saving for the future, and have a source of income such as an allowance or part-time job.

Encouraging your child to contribute to their college savings is a good idea for several reasons. It can help grow the college fund faster. It can help your child learn about saving and the true cost of college. And it can help them be involved in their own learning trajectory, giving them some skin in the game and motivation to succeed when they actually get to college.

The level of savings your child can contribute depends on finances and what works for your family. But making your child responsible for some part of their college savings will let them experience the benefits of planning for the future and make them understand that college is a significant financial investment.

How You Can Pay For College

About 20 million students enroll in college every year.1 That’s 20 million families balancing the costs and benefits of postsecondary education.

A few years ago, Francie Peterson, financial writer at Principal®, was one of them. She and her husband and son debated the merits of a range of universities, and in the process learned a lot. Her insights may help you figure out the cost of college for your own kids.

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