With approximately 63% of high school seniors attending college upon graduation, pursuing a college education is a common yet increasingly important milestone. However, achieving this high level of education is often associated with a heavy financial burden, with the average student loan debt soaring over $30,000 per student. Many parents seek ways to navigate the intricate landscape of college financing to help their children without compromising their financial stability. This article aims to help parents understand the various strategies and resources available for financing their child’s academic journey. From uncovering the intricacies of college costs to understanding the vast array of financing options, this guide will set parents up for success in paying for college and supporting their children’s educational goals.
Understanding College Costs
Though important, college can be costly. Understanding how to finance a college education begins with understanding the various costs involved.
Tuition
The largest college cost is tuition and fees. This cost encompasses classes, technology fees, matriculation fees, registration fees, and more. The average cost of tuition and fees varies between private, public in-state, and public out-of-state institutions, with private colleges being the most expensive at an average yearly rate of $42,162. It is important to remember that tuition and fees typically increase annually by about 4%.
Housing
A significant part of the college experience for many students is living in the dorms and eating in campus dining halls. Room and board covers the cost of living and eating while in college. Many universities offer on-campus housing in dorms, apartments, or scholarship housing. These on-campus living situations will also include a meal plan for students in on-campus dining facilities. Living off-campus is also an option in many college towns and can often be cheaper than on-campus housing.
Supplies
Books and supplies are another college expense that won’t show up on your student’s university bill. College textbooks can be costly, mainly when purchased new. Some textbooks can cost hundreds of dollars, only to be used for just one or two chapters. Luckily, many options for renting or buying used textbooks can save you hundreds of dollars each year.
Miscellaneous
Beyond living and studying, your student may encounter additional costs while at college. Transportation costs, personal expenses, and unexpected costs, like car repairs, are often overlooked when it comes to budgeting for college. It is essential to help your student remember these costs when creating their college budget.
Understanding the various components of college costs provides a clearer picture of the financial landscape of higher education. This knowledge will help parents and students create a more effective plan for paying for college.
Financial Aid Options
One of the primary ways that college is paid for is through financial aid. Many types of financial aid exist, including federal grants, federal loans, university scholarships, and private scholarships.
Federal Aid
The Free Application for Federal Student Aid encompasses many types of federal educational assistance. To see what kind of aid your student may qualify for, help them complete the online application. One of the main types of assistance offered is the Pell grant. Pell grants are awarded to undergraduate students who display exceptional financial need. These grants, unlike loans, do not have to be repaid and act more as scholarships.
Additionally, direct subsidized and unsubsidized loans are available through FAFSA. Subsidized loans are open to undergraduates who display financial need. The US Department of Education pays the interest on subsidized loans while the student is in school at least part-time and for the first six months after graduation. Alternatively, unsubsidized loans are available to undergraduates and graduate students regardless of financial need, but the student is responsible for interest payments during all periods. Federal financial aid is an incredible resource for making a college education a reality.
Scholarships
Beyond federal financial aid, many universities and private groups offer scholarships for merit and financial need. Scholarships exist for academics, athletics, and extracurriculars. Additionally, they exist for the pursuit of specific educational goals or interests. For example, many state colleges offer scholarships for high GPAs or test scores. Students can also apply for private scholarships from various organizations and sources.
Understanding the nuances of each financial aid option empowers parents to make informed decisions that align with their financial circumstances and their student’s educational goals.
Saving for College
Preparing for the financial demands of your child’s college education requires early planning and smart saving strategies. By starting college savings early, parents can be better prepared for when their student is selecting and attending college. Early saving allows for compound interest, which allows your savings to grow faster over time. There are two primary educational savings accounts: 529 savings plans and Coverdell education savings accounts (ESA).
529 Plans
529 or qualified tuition plans are state-sponsored, tax-advantaged savings accounts for education expenses. Parents can create these accounts for their children even as early as birth and add them to them over their child’s lifetime. The money in these accounts and the interest accrued do not accrue income tax. Even when the money is pulled out of the account, it is exempt from federal and most state income taxes. 529 plans are a smart way for parents to save for their child’s education over their lifetime.
Coverdell Plans
Coverdell education savings accounts (ESA) are another tax-advantaged savings option. These accounts are similar to the 529 plan. However, they do have a contribution limit of $2,000 annually. ESA also has a more diverse array of investment options, which can make them more profitable. Luckily, your child can benefit from a 529 plan and ESA, and you can contribute to both savings accounts every year.
Interested in Learning More?
Parents are encouraged to explore these saving options in alignment with their financial goals and risk tolerance. By adopting a proactive savings mindset, families can contribute to the financial well-being of their children’s education.
Create a plan for your child’s college savings today with the help of the financial experts at Master’s Insurance!