How will I pay for college?
If you’re worried about the cost of higher education, you’re not alone.
Your child worked hard to get accepted into a good college, but after the acceptance letters are opened, questions remain: How are you going to pay for it, and what are your financial aid options?Know that you're not alone, and there is tuition assistance available.
In fact, according to Gallup’s 2001–2015 Economy and Personal Finance survey, 73% of parents with children under the age of 18 worry about finding college funding solutions—topping the financial worries of every surveyed subgroup.1 But with the cost of tuition skyrocketing in recent years, many take on student loans and start their young adulthood saddled with college debt.
And with the average graduate of the class of 2016 carrying a student loan debt of $37,172,2 parents have reason to worry—particularly those who are middle income or lower. But there are ways to combat the costs of a college education, and with a little innovation, flexibility, and preplanning, your child can realize his or her future dreams.
College funding: The long and the short of it.
Here are some long- and short-term strategies to help you secure the funds for a college education.
- Section 529 plans, college savings plans, and prepaid tuition plans may offer tax advantages and, in some cases, the ability to pay in installments over a longer period of time. Note, money from a 529 plan must be applied to qualified higher educational expenses related to college; otherwise, there could be adverse tax consequences to nonqualified withdrawals. Additionally, there could be state tax benefits for investing in your in-state 529 plan, if your state sponsors one.
- Coverdell Education Savings Accounts (ESAs) allow you to make contributions for your child until he or she is 18. Contributions may grow, tax deferred, and may also be withdrawn, free from federal income taxes, for any qualified higher educational expense incurred by your child before age 30. There are maximum contribution limits for Coverdell ESAs. Money from Coverdell ESAs can be applied to K–12 educational expenses, not just college expenses. The owner of the Coverdell ESA can self-direct the investments on behalf of the Coverdell ESA.
- 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, as well as with your tax advisor, prior to making any decisions. The assets in the UGMA or UTMA are owned by the minor and become available to him or her upon reaching the age of 18. Assets transferred to the UGMA or UTMA are irrevocably transferred to the minor. An UGMA or UTMA account can affect a child's ability to qualify for financial aid because the child owns the assets transferred to the account.
- Scholarships are available from colleges as well as from many businesses, and private and public organizations. Remember that a scholarship may affect your child’s financial aid offer from a college. Scholarships are available for everything under the sun—from sports and science to academic merit and music. Check with your child’s high school guidance counselor or the prospective college's financial aid office about available scholarships. You may also want to search online or speak to your local reference librarian.
- Cut college costs with a little fresh thinking. Pose these outside-of-the-box questions to your child: 1) Could you live at home and commute to college? 2) Could you rent an off-campus apartment and share it with friends? 3) Could you save money on a meal plan by brown-bagging it or cooking your own meals? 4) Could you save money by taking public transportation? All of these ideas could potentially save hundreds of dollars a semester.
- Work it! Working part-time often correlates with a higher GPA, and jobs can help students be more effective and organized as well as helping them develop important skills.3 Best of all, a job can help your child pay for college costs such as books, supplies, and tuition. Summer’s a great time to earn even more money for the coming year.
- Consider RA positions. Many colleges offer free room and board to resident advisors (RAs). If your son or daughter plans to live on campus, this can result in a big discount. Typically, RA positions are available to students who have already completed their freshman year and have maintained a minimum GPA.
- Keep that cap and gown in mind. Did you know the average student takes about 4.5 years or longer to graduate? This can add thousands to tuition bills and delay the beginning of careers. So how do you ensure that your child graduates on time? Be sure he or she takes 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. Then be sure that your child decides on a major early and arranges his or her schedule to make sure that all requirements can be met.
So, what’s next?
Talk to others in your community, including parents, your child’s high school guidance counselor, teachers, and his or her prospective college's financial aid office. And contact your new York Life agent. When it comes to your finances, your agent can help you look at the big picture and find more solutions to fit your needs. And if you don't have an agent, use the “Talk it through with an expert” tab, and an agent in your area will contact you at your convenience. Or click here to learn all the ways you can do business with us.
Neither New York Life nor its agents and affiliates provide tax advice. Please consult your tax advisor to find out how the general topics discussed in this article would affect your personal tax circumstances.