Attending a college or university and earning a degree is a large part of setting yourself up for success well into the future. Most employers require potential hires to have completed at least some level of higher education before a job offer is made. For better or worse, more weight is placed on earning a degree than job experience.
The hard truth is that attending college has become a significant financial burden for most young adults and their families. It is reported that the cost of tuition alone increases an average of 6% each year. Facing a cost increase that far outpaces inflation and annual salary increases, it has become incredibly important to understand the steps that can be taken to help pay for college. Here are a few expert tips on the best ways to save and common tuition paying options.
Saving for College
For parents, grandparents, and aunts and uncles, setting aside money for a child’s education is often a financial objective that is high on the financial to-do list, similar to saving for retirement, paying off debt, and maintaining an emergency fund.
529 Plan
When a child is still young, a state-sponsored 529 plan is a smart way to save for future college expenses. Though each state offers access to a 529 plan through a different company, all plans work in a similar way. Money saved in a 529 plan grows without the burden of taxes, and so long as the funds are withdrawn and used for qualified education expenses, there is no tax due when the money is taken out of the plan.
State-sponsored 529 plans do not place restrictions on where an individual can attend school, but there may be limitations on what qualifies as an education-related expense. Before contributing to a 529 plan, take the time to understand how the funds can be used, what your investment options are, and any other limitations that may impede your college savings plans.
Scholarships
Some people planning to attend college bank on scholarships based on certain skill sets, like top-notch athletes, musicians, or dancers. Fortunately, you don’t have to fall into one of these elite categories to earn the attention of scholarship funds.
Private scholarships offered by non-profits and other organizations are a smart place to look for money to use for higher education expenses that do not have to be repaid. Instead of basing awards on skills, organizations may offer private funding based on financial need, community involvement, or special interests.
Most high school guidance counselors can provide resources for finding and securing private scholarships, as can financial aid counselors at a college or university. A quick Internet search can also offer results for private scholarship funding resources for students in need.
Know Your Borrowing Options
Both private and federal student loans are available to nearly all students attending a college or university.
Private Student Loans
Private student loans, also known as unconventional loans, are offered to those who have strong credit or the ability to engage a co-signer (like a parent) in the process. They may provide a lower interest rate or greater funding in total than federal student loan options.
Federal Funding
Loans made available directly through the Department of Education, also known as conventional loans, focus less on credit history and score of the borrower, but they are limited as to how much funding is available. However, federal student loans provide flexibility in repayment not afforded to students who utilize private student loans.
Understanding the options for private and federal borrowing for education is an important step in making the college experience affordable for the long term. Whether you are the parent of a young child or a high school senior, know that there are ample options available to help pay for college.
Saving early on through a state-sponsored 529 plan is a smart choice when cash flow allows, and diligently searching for private funding through scholarships makes sense even if you aren’t a star athlete or have other notable skill sets.
Finally, knowing the methods for borrowing for education expenses through private and federal funding is key to rounding out the finance puzzle.
