Does Your Family Have a Plan to Pay for College?
Starting earlier, rather than later, can help you better prepare.
By Kathryn Knight Randolph
May 25, 2017
College is one of the greatest investments the family, as a whole, will ever make together. Whether parents choose to pay the whole bill or none at all, it’s still a contribution on every family members’ part. After all, even if parents choose not to pay for college, their finances are still a factor in financial aid and they will likely provide support somehow during their child’s college years, whether that’s paying for flights to and from school, clothing or occasional cups of coffee.
In a report from Sallie Mae, How America Pays for College, 9 out of 10 families believe that college is important and have been planning for their children to attend since preschool. However, less than half of those families have had a plan to pay for college. As a result, students and their families are eliminating colleges from their choices because of tuition price as well as choosing in-state schools to help reduce costs.
In light of this, how can families plan to pay for college?
Look at colleges earlier. Students typically don’t begin looking at colleges until junior year – some even wait until fall semester of senior year. Families actually need to make a list of potential colleges sooner, and along with creating that list, they should investigate the total cost of attendance as well. Total cost of attendance can be found on each college’s financial aid website. Oftentimes, these college financial aid pages will have a Net Price Calculator.
The Net Price Calculator figures in your family income, how many children will be in college at the same time as well as a few other details. With this information, the school is able to give you a rough idea of how much you’ll have to pay after grants and scholarships. This gives families a more realistic picture of college costs and is the first step in really making a plan to pay for college.
Save for college. Whether your children have just been born or are heading to college next semester, saving is paramount. Parents can set up a 529 savings plan for their children. These accounts are investment plans that mature over the lifetime of the plan. Initially, the investments take risks in order to multiply faster but then move to more conservative options as the student nears college age. For families that started saving later rather than sooner, choose an account that offers tax deductions or tax-free withdrawals.
Tax deductions. Though tax deductions do not come into play until students actually start college, they can be a significant source of financial help during the college years. The American opportunity tax credit is a credit for qualified education expenses paid for an eligible student for the first four years of higher education and can result in a maximum annual credit of $2,500 per eligible student. The Lifetime Learning Credit is for eligible expenses for undergraduate, graduate and professional degree students. It is worth up to $2,000 per tax return.
Maximize aid eligibility. Believe it or not, there are ways to make yourself look more “needy” [in terms of financial aid] than you actually are, but you have to start taking steps toward maximizing aid eligibility in the sophomore or junior year of school. For instance, if you plan to buy a new car or home, buy them in the sophomore or junior year of high school in order to reduce available cash, which makes families look more “needy.”
Don’t write off student loans. When families think of student loans, they tend to think of a student loan debt figure that is astronomical – like $100,000. The average undergraduate subsidized loan is $3,565, and the average undergraduate unsubsidized loan is $3,944 per year. While they aren’t ideal, they have the lowest interest rates of any type of loan. Student loans help to bridge the gap between the cost of attendance and the help that scholarships, grants and work study provide.
The shock of paying for college won’t be so severe if families begin planning years in advance. Given the significant cost, it’s not only smart – it’s necessary.
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