Send your kids to school while avoiding student loan debt.
Most parents say saving for their child’s college education is harder than they thought it would be, according to one research survey. Parents also told LendingTree that they feel guilty for not saving more for their kids.
But it’s not their fault. Saving for college has gotten harder since their kid was born.
In-state tuition and fees at public universities have increased by 175 percent in the last 20 years. But just how expensive is a four-year education?
- In-state: $25,707
- Out-of-state: $44,014
- Private: $54,501
Relying on debt to cover those costs will only lead to a bigger burden later so it’s important to start saving as soon as possible. Education Data says that considering student loan interest, a bachelor’s degree could exceed $500,000. Let’s avoid those extra fees.
In this guide, we’ll show you how to start saving.
Open a saving account
A traditional savings account works, but there are other kinds out there built specifically for educational savings.
Here are a few of the most popular.
529 Saving Plan
These are state-sponsored investment plans. Through a 529, you can list a beneficiary and pull out money tax-free for educational expenses like books, room and board, and tuition. Each state has different rules, but contribution limits tend to be pretty large and you don’t need to meet a minimum income requirement to start.
Coverdell Education Savings Account (ESA)
Formerly known as an Education Individual Retirement Account, ESAs are open to anyone looking to open an account on behalf of their kids. You can invest up to $2,000 per year for your child’s education – and not just for college. The money you save is eligible for use starting at the kindergarten level. Your contributions are tax-free when pulled out for qualified educational expenses like books.
Home Equity
This might seem out of the blue, but some parents do use home equity as a way to save for their child’s education.
The goal is to pay down your mortgage or pay it off completely. Then you’d take out either a home equity loan or just use the money you’ve freed up to pay for tuition. This path can be beneficial since some schools don’t take home equity into consideration when determining what aid your child is qualified for.
Financial Aid
There are several financial aid options and taking advantage of them is a great way to minimize or even completely erase college costs.
The first step is filling out the FAFSA form and try to do so as close as possible to January 1 of the year you plan on enrolling your student. You can get started now by visiting StudentAid.gov.
Paper applications are also available through the financial aid department at most colleges. The FAFSA determines how much you’re expected to contribute toward your child’s education – this then decides your child’s “financial need.”
The higher the financial need, the more scholarships or grants your student can expect.
Federal Pell Grant
Like other federal financial aid options, the Pell Grant varies depending on the expected family
contribution, the school’s cost of attendance, whether your child is a full-time or part-time student, and whether they’ll go to school for the full academic year. Once you’ve submitted the FAFSA application, your child will automatically be considered for this grant.
Federal Supplemental Educational Opportunity Grants
Like Pell Grant, this is determined by your family’s level of need, however, not every school provides this grant. Federal Supplemental Educational Opportunity Grants are usually given to students with higher levels of financial need. If your child qualifies, they could get between $100 and $4,000 per year. Your student will automatically be considered for this grant after filling out the FAFSA application.
Scholarships
These are everywhere, and there’s no limit to how many your child can apply to. Scholarships are free money that your child can get doing something cool, having a particular skill, writing an essay, or simply existing. Whether they’re a new or returning student, or if you yourself are going back to school, there’s something for everyone. Apply for any and every scholarship possible.
School counselors are a great resource for finding scholarships that apply to your specific circumstances.
Just make sure to meet deadlines and closely follow directions – you don’t want to get disqualified on a technicality.
Your Child Got Accepted, Now What?
You’ve applied for scholarships, take advantage of other financial aid programs, and now you’re planning out your student’s semester. There are still a few more ways to save.
On vs. Off-Campus
Generally, room and board on campus is cheaper than off-campus housing. But this isn’t always the case. Take a look at the cost of rent and shared student housing that the local area offers. You might be surprised at the difference.
Meal Plans
These are ideal for students living on campus. It makes getting fed easy and convenient, and it can be a lot cheaper than weekly grocery trips.
Work-study Programs
These programs give your child another resume line while still saving on tuition costs. Work-study programs are part-time jobs geared toward students. They’re provided by the school, usually on campus, and should be in your child’s field of study. But there are off-campus opportunities as well like with school-affiliated nonprofits. Eligibility is often determined by financial need.
All of these methods will help you and your child avoid debt while paying for an education. One important step, though, is teaching your child good personal finance practices like how to budget. On average, college students have about $3,000 in credit card debt. Teach them how to build credit responsibly. Student loan debt isn’t the only kind of debt they should be avoiding.
