College Costs HOW MUCH?
7 tips on how to pay for higher education (including scholarships and maximizing your 529 plan)
Whether your child is heading off to college or trade school in the fall or a few years, it’s never too early to make plans to pay for their education. Investing in a 529 plan is a great start, but be sure to search for scholarships, too. Check out 7 valuable college savings tips below.
1. Fill out FAFSA
If your child is anywhere near college age, you’ve undoubtedly heard stories about filling out FASFA (short for Free Application for Federal Student Aid). Some parents breeze through the process while others struggle. You’ll have a much smoother experience filling out FASFA if you have all your financial information with you before you begin.
Nearly every family must complete FASFA because it allows students to be considered for aid based on their family’s financial situation. Your FASFA information will be sent to the schools your child applies to, and they will use it to determine their financial aid package. This includes federal financial aid and any of the school’s grants and scholarships.
Even if you don’t expect to qualify for need-based financial aid, you should complete FASFA because many merit-based scholarships require it.
The deadline to file FASFA is June 30 each year, and Michigan’s deadline is May 30. In addition, colleges may have their own deadlines, so it’s a good idea to check with the schools your child is interested in attending.
2. Maximize your 529 plan
If you’ve been saving for your child’s higher education through a 529 plan, bravo! 529 plans, legally known as “qualified tuition plans,” are tax-advantaged savings plans intended to encourage saving for future education needs.
There are numerous advantages of 529 plans. The biggest advantage is that 529 plan investments grow tax-deferred, and distributions are tax-free when used to pay for education expenses, including tuition, books and supplies, and some housing costs.
Another benefit to saving in a 529 plan is high contribution limits if your children are the plan's beneficiaries. Most 259 plans have lifetime contribution limits of $350,000 and up (limits vary by state). Others can contribute to your 529 plan – this is a popular way for grandparents to help fund college education – but their contributions are limited to $16,000 for individuals and $32,000 for married couples in 2022 (the annual gift tax exclusion) unless you take advantage of accelerated gifting.
Accelerated gifting falls under special rules unique to 529 plans: A lump-sum gift of up to five times the annual gift tax exclusion amount ($16,000 for 2022) is allowed in a single year, which means that individuals can make a lump-sum gift of up to $80,000 and married couples can gift up to $160,000. With accelerated gifting, no gift tax will be owed, provided the gift is treated as having been made in equal installments over a five-year period, and no other gifts are made to that beneficiary during the five years. This can be a favorable way for grandparents to contribute to their grandchildren’s education while paring down their own estate or a way for parents to contribute a large lump sum.
The advantages of 529 plans do come with some stipulations. One condition is that money in your 529 plan must be used for educational purposes. If the plan’s beneficiaries (your children) finish their schooling and there is still money left in the fund, you will incur taxes and fees to withdraw the remaining money.
If you have younger children, now is the best time to establish a 529 plan. Our team of experienced financial planners can assist you in investing in a 529 plan to suit your family’s needs. You can schedule a free, no-obligation consultation here.
3. Search for scholarships
Scholarships are a phenomenal way to decrease the cost of higher education because, unlike loans, scholarships don’t have to be paid back. According to Next Gen Personal Finance, in 2021, 63% of all undergraduates received at least one scholarship or grant. And in 2021, financial aid packages averaged $14,800 for undergrads, according to the College Board.
Each school your child applies to will send you a financial aid package to help you evaluate the true cost of attending the college. But you should also ask all the schools your child is interested in attending if there are other scholarships available and if your child qualifies.
Don’t stop your pursuit of scholarships with the colleges, though. Here are a few websites to expand your search:
CareerOneStop.org – sponsored by the U.S. Department of Labor, the site has a database of more than 8,000 scholarships for undergrads, graduate students, and vocational school students. You can search for scholarships, fellowships, grants, and loans.
FastWeb.com – this is a free scholarship search platform where students can create a profile, and the site will email scholarship leads that are a match.
Scholarships.com – students can create a profile and determine if their information matches the criteria of one of the more than 3.7 million scholarships and grants in the site’s database.
Unigo.com – this site boasts it can find more than 3.6 million scholarships and grants. Students can create an account for free.
4. Choose an affordable school
Perhaps the best way to keep the cost of higher education down is to select a school within your budget. It’s wise to have an honest discussion with your child about the cost of attending any of the schools on their wish list before they apply. It’s heartbreaking to see a child’s dreams dashed after being admitted, only to learn the school isn’t financially feasible.
Also, look at the true cost of attendance for each school. Take the cost of tuition, housing, and fees minus any scholarships to get the true cost of attendance. You can use the school’s net price calculator on their financial aid page for this exercise but remember that the result is only an estimate. And don’t automatically exclude private schools. With merit and need-based aid, sometimes private schools are more affordable than public universities.
In looking at schools’ affordability, investigate each school’s merit scholarships. Many reward students with high grade-point averages and high SAT scores, along with other academic considerations.
Other points to consider:
The cost of living in the school’s area. If the area has a high cost of living, it may bleed over in housing costs – either on- or off-campus.
State schools are usually less expensive than out-of-state schools because residents are given less costly in-state tuition rates. Plus, if your child attends an in-state school, travel costs will be less, and transporting all their belongings will be easier and cheaper.
Don’t be too impressed with the “prestige” schools. While there may be some benefits to attending an Ivy League school, what’s most important is what students do with the opportunities available to them, no matter which school they choose.
5. Look for grants
Grants are a fantastic way to help pay for college because they don’t need to be paid back. Generally, grants are need-based and usually financed by the federal government, individual states, or the college. The first step in getting grants is to fill out your FASFA. The results of your FASFA will determine your Expected Family Contribution and tell you if your student qualifies for a Federal Pell Grant, the most common grant awarded. Your child’s school may also have grants available, so inquire with the campus financial aid department.
6. Research work-study jobs
Work-study jobs are another way for qualifying students to lower the costs of attending college by working part-time jobs on campus. Work-study positions are needs-based and not guaranteed, even if work-study is listed as part of the financial aid package. Some schools award work-study positions on a first-come, first-served basis, so it’s essential to submit FASFA as soon as you can.
Keep in mind that students can’t earn more than their Federal Work-Study award allows, and that work-study funds are paid in the form of a paycheck. Generally, these earnings are meant to assist students with day-to-day expenses, not larger-ticket items like tuition and housing.
7. And finally, apply for federal loans
Your FASFA will determine if your student is eligible for federal loans, and your child’s school’s financial aid department will explain the details in your financial aid award letter. Federal loans offer benefits that don’t come with private loans, such as lower interest rates, cosigners are not needed, and repayment doesn’t begin until the student graduates or takes less than a half-time course load.
Students should always borrow as little as possible to cut down their overall debt. Remember, just because a student is eligible to borrow money doesn’t mean they have to borrow it all. If needs change, they can request more funds later.
Types of federal student loans:
Direct Subsidized Loans are available to undergraduate students who show financial need. They can be used to help pay for college or trade school.
Direct Unsubsidized Loans are available for undergraduate, graduate, and professional students and are not needs-based.
Direct Consolidation Loans combine all your eligible federal student loans into one loan.
Please remember, no matter your child’s age, our team can assist in planning for their higher education needs. You can schedule a free, no-obligation consultation here.