How to pay for college: Strategies to financially prepare for the cost

Getting accepted into college is a major accomplishment. The only question is: Can you afford it? If you’re not sure, you may find that some of these long and short-term funding strategies are an effective way to prepare for the high cost of higher education. 

Paying for college is hard

The cost of a college education is skyrocketing, with the average student now paying $38,270 per year to get their degree.¹ As concerning as this trend may be, there are some proven strategies that you can use to secure the funds you need and help your children achieve their dreams for the future.

What costs do you have to cover in college?

While every student’s circumstances will be different, here are some of the expenses they are most likely to encounter during their college years:

• Tuition and Fees
• Room and Board
• Books and Supplies
• Parking and Transportation
• Activities (clubs, sporting, events, intramurals)

Related: Learn more about starting a college fund

Long-term ways to save for college

Before you settle on a college funding strategy, it’s important to consider your time horizon. If your future scholar is still young, you may want to consider setting money aside in a tax-advantaged educational savings account where it can grow over the years. Here are a few of the most popular options:

• Section 529 Plans  
  A Section 529 Plan is a tax-advantaged account that is specifically designed to help pay for college. Most states offer 529 plans, but you don’t have to be a resident or attend a state school to use them (although you may qualify for state tax benefits if you do). While there are two types of 529 plans available, it is possible to use both if you want to keep your options open. 

College savings plans: As the name suggests, these plans make it easy for you to save and invest for college. That’s because these plans offer tax-deferred growth and tax-free distributions for qualified educational expenses such as room and board, tuition, housing, lab fees, and more. 

Prepaid tuition plans: These plans help make college more affordable by allowing you to “lock in” today’s prices and avoid future cost increases. Prepaid plans are usually offered by states—but some colleges and universities offer them as well. In most cases, you can purchase the plan all at once or pay in installments. Here again, any benefits your child receives from this plan are completely tax-free (provided they are used for qualified educational expenses).

• Coverdell Education Savings Accounts (ESAs). 
  Coverdell ESAs operate much like 529 college savings plans in that contributions grow tax deferred and withdrawals are tax free² for qualified higher educational expenses incurred by your child before age 30. What makes them different however, is that contributions to Coverdale ESAs have contribution limits, can only be made until the beneficiary’s 18^th birthday, and any money deposited can also be applied to K–12 educational expenses. The owner of a Coverdell ESA is also able to self-direct the investments made within the account (529 plans are more restrictive).

• Uniform Transfers to Minors Act (UTMA) and The Uniform Gift to Minors Act (UGMA). 
  These custodial accounts allow you to set up an account in your child’s name. You can make transfers to an UTMA/UGMA account on a per-child, per-year basis. Check the IRS website for current contribution limits; check as well with your tax advisor prior to making any decisions. Note that the assets in the UGMA or UTMA are owned by the minor and become available when the minor reaches the age of 18. Assets transferred to the UGMA or UTMA are irrevocably transferred to the minor. A UGMA or UTMA account can affect a child's ability to qualify for financial aid, because the child owns the assets that have been transferred to the account.

Do most parents pay for college?

Yes, according to a recent Sallie Mae study, 74% of parents used their income and savings to help pay for a child’s college education. The study also found that parents who helped pay for college covered 48% of the total cost.³

Short-term ways to pay for college

If your child is within a few years of entering college, saving and investing may not get you where you need to go. If that’s the case, there are several more immediate sources of funding you may want to consider.

• Scholarships

Since they do not have to be repaid, scholarships are one of the best ways to cover college costs. Many organizations, schools, and private companies offer merit or need-based scholarships. Start researching local and national opportunities, and consider niche scholarships based on your child’s skills, background, and interests.

•  Grants

Grants are essentially free money provided by the government, colleges, or private organizations. Federal Pell Grants, for instance, are available for students with financial need. Completing the FAFSA (Free Application for Federal Student Aid) can connect your child to grant opportunities.

•  Work-Study Programs 

Work-study provides part-time employment for students while they attend school. These jobs can be on-campus or with partner organizations, helping students reduce tuition costs while balancing work and academics.

•  Employer Tuition Assistance

Some companies offer tuition reimbursement or assistance as part of their benefits package. If your child is working full- or part-time, have them talk to their employer to see if they'll help pay for college.

• Military Benefits

Programs like the GI Bill provide education benefits for eligible service members, veterans, and their families. Enlisting in the military or using a family member's earned benefits can offset tuition and other educational expenses.

Other ways to pay for college or reduce the cost

If you find that you are still coming up short, there may be other ways to reduce the cost of college or relieve some of the financial burden:

• Community College or Transfer Programs

Community colleges offer affordable tuition, and many have transfer agreements with four-year universities. By starting at a community college and transferring later, you can significantly reduce the overall cost.

• Dual Enrollment Programs

Dual enrollment classes allow students to earn college credit while they are still in high school. By taking as many of these classes as possible, your child can help reduce the overall cost of their college education. 

• AP and CLEP Exams

Another way that high school students can earn college credit is by taking college-level classes and passing their Advanced Placement and College-Level Examination Program exams. 

• Cash value life insurance

In addition to providing life insurance protection, permanent life policies like whole life insurance accumulate cash value over time. If your coverage needs change, you can use the policy’s cash value to pay some of your child’s higher education expenses. In most cases, you can access these funds tax-free as they are generally considered to be a repayment of your premiums.⁴

How to plan for college success

Did you know the average student takes about 4.5 years or longer to graduate?⁵ This can add thousands of dollars to tuition bills and delay the beginning of careers. So how do you ensure that your child graduates on time? First, before your child commits to a college, ask, “Will my child be able to arrange their schedule so they can graduate in four years?” 

 Next, make sure your child takes as many core classes as possible during the first year of college. This will also allow your child to give different majors a “test drive” and see which might be a good fit. After that, urge your child to decide on a major early and arrange his or her schedule to make sure that all requirements can be met.

Paying for college FAQs

Related Articles

¹ https://educationdata.org/average-cost-of-college

² While earnings in a Coverdell Education Savings Account (ESA) grow tax-deferred and withdrawals for qualified education expenses are federally tax-free, some states do not follow this treatment. Unlike 529 plans, ESAs generally do not provide state income tax deductions or credits for contributions. 

³ https://www.salliemae.com/content/dam/slm/writtencontent/Research/HAP_2024.pdf

⁴ Accessing the cash value in the policy will reduce the available cash surrender value and the death benefit. 

⁵ https://nces.ed.gov/fastfacts/display.asp?id=569