Finding out that your child has been accepted into college is most likely going to be one of your proudest experiences. But then the reality sets in of how much it’s going to cost to pay for tuition, fees, and even room and board for four years at a private college. With averages that top $30,000, paying for a college education isn’t as cheap as it used to be.
Thankfully, there are a handful of ways to make sure there is some financial wiggle room for when your little genius starts their higher education. Let’s take a look at the top ways.
1. Federal Loans
This should be the student’s first stop If the funds haven’t already been saved. Filling out the Free Application for Federal Student Aid or FAFSA will help determine the amount of aid your student may be eligible for through federal and state programs. Some of these programs will be grants, but a major portion of the cost will likely be paid for by Federal Student Loans.
If your child is a dependent, they may also be eligible to get a Parent PLUS Loan, if you provide your information. It will depend on your credit, but it’s a fixed-rate and will cover up to the entire cost. The other option for federal loans is Stafford Loans.
2. Private Loans
Even after grants, scholarships, and federal loans, depending on where your child is going to be enrolled, there still may be some costs due. This is where private student loans may be of benefit. They will often be at varying levels of interest, depending on credit, and each lender will have their own terms, just like with any other type of loan. Loans can be obtained either in the parent’s name or in the student’s with the parent as a co-signer.
3. Leverage A 529 Plan
The 529 College Savings Plan is becoming increasingly popular these days. These savings plans allow a higher contribution than other savings plans, and the funds can be used for any college-related costs tax-free. The plan can be diversified significantly and offers a much better return than traditional savings accounts.
4. Use Home Equity
This is one of the two “last resort” options. If you are the owner of your home you may be able to fund some or all of your child’s tuition with the equity in your home. This is not the highest-risk method, but it’s second in line. You can use either a home equity line of credit, take out a home equity loan, or even do a cash-out refinance. All carry some risk.
5. Use Retirement Funds
This is an absolute last resort option. The type of funding available would depend heavily on the type of retirement account that was being drawn from. If this is an option you would like to pursue, you should reach out to your financial institution, as well as your tax professional, to discuss how to impact your retirement minimally.
