How to pay for your child's college
Today's parents face a daunting challenge among the rising costs of living, the high cost of raising a child and an uncertain economic future many parents are highly afraid of how they can pay for their child's college. College costs are staggering and experts predict that they will only get worse. According to the College Board, the current average cost (tuition, fees, books, room and board) for a four-year state school is $12,800 per year for an in-state resident and $19,200 for an out-of-state resident. A four-year private school is estimated to cost $27,700 per year. The result of this is that your child's college education could cost over $100,000 in today's dollars. Yet the good news is that whether you have started early or have college right around the corner there are things you can do. Here are some tips on how to pay for your child's college:
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The strategy you decide to employ will be primarily dependent upon the age of your child. If you are planning college for a teenager (fewer than three years away from starting college) you may wish to consider the following options:
- Plan to pay expenses out of current income
- Shift income to the child through employment
- Apply for financial aid and scholarships.
Every year millions of college students receive financial aid either through their chosen college or the federal government. It is estimated that over half of the college students enrolled today receive financial aid of some kind. There are basically three types of financial aid: grants and scholarships (which do not have to be repaid but often have minimum academic requirements), and student loans which will have to be repaid after graduation.
If you child is younger than you have more options as far as saving money. There is no need to overwhelm yourself using a complicated savings strategy. Simply set a goal to put aside a certain amount of money each month toward a college fund. Keep in mind that if you and your child begin saving early, the amount you have to set aside each month will be smaller. There are also several investment vehicles that are set up primarily to save for college. Most of these accounts are called college funding accounts or 529 accounts and have significant tax breaks. Check with your financial professional to see if this type of savings account is appropriate for you and your savings needs.
If you are trying to help a college-age student consider the following options-
- The child may have to help meet some of the expenses by part-time work during the school year and full-time work during the summer months. In addition there are work-study programs. Many colleges also offer work-study programs to their students. A work-study job is often part of a student's financial aid package. The jobs are usually on campus and the money earned is used to pay for tuition or other college charges.
- Student loans to the student have significant tax deductions and the student can defer payments until after graduation. Parents can then help make payments if they choose once the student has graduated and the payments begin.
- Need-based Financial Aid is the amount of aid a student can receive and depends on the cost of the college and on his or her family's ability to pay these costs. The majority of financial aid is need-based and is available to qualified students.
On a final note financial experts unanimously agree that dipping into your IRA or 401K to pay for college is never a good idea. When considering the penalties, lost income potential and tax costs this is not a cost effective way to pay for college. While there are many ways to pay for college your retirement will be up to you.
