Saving for college can be a good way to reduce the amount of money you or your children will have to pay for tuition and fees. It also reduces the burden of having to find financial aid. However, each method of paying for college has its benefits and downsides. Carefully consider them before you decide to go with one or the other.
Start Saving Early
It is better to start saving for college when your child is young than to start doing it when she enters high school. However, it is better to start saving at any time than for your child or you to take out a student loan. Interest earned by these accounts will help cover college costs.
Scholarships
About 80 percent of parents think that their children will get scholarships. However, only about 7 percent of them actually will get private sector scholarships. On average, those students receive about $2,000 in scholarships as undergraduate students. If a student gets a private scholarship, it will often decrease the amount of need-based aid packages from colleges and the federal government. It is important to apply for scholarships, but it is also important to realize that students have about a one in 15 chance of getting one. In addition, scholarships usually pay less than 10 percent of a student's college tuition.
Savings
Parents can save for their child's education by contributing to a Section 529 college savings plan. The contributions are tax deferred as well as tax-free if they are used to pay for college. These tax advantages will not expire. The parent controls the account, not the student. The money put into the account will not significantly affect the ability of your child to receive financial need-based aid. It is important to use a direct sold plan, not one sold by an adviser. Plans sold by advisers tack on fees and commissions that can eliminate any tax savings. Many states also offer pre-paid tuition plans that can be used toward tuition at a public college in the state where the plan was opened. These plans do not account for increases in tuition over time. 529 plans can be used for certifications and all types of degrees. They can also be used at public and private colleges, as long as the college is eligible for federal student aid.
Financial Aid
Financial aid comes in a variety of forms, including scholarships. Other forms include student loans, both from the federal and state governments as well as private loans from private financial institutions. Interest accrues on unsubsidized student loans from the federal government as well as on private loans while the student is in school. Interest while the student is in school or during grace periods does not have to be paid on subsidized loans.
Other types of financial aid include tuition waivers, such as the one offered by Texas to educational aides and substitute teachers who want to go to college to become teachers. The federal government also offers work-study programs that pay students an hourly salary for work they do at a job scheduled around their classes. These programs are offered at colleges eligible for financial aid from the federal government. Work is often done for on-campus employers, but some students also work for off-campus employers. Jobs are often assigned based on a student's major and often are for nonprofit organizations. Federal grants are another option to help pay for school. The federal government offers financial-need based grants, such as the Federal Supplemental Educational Opportunity Grant, the TEACH Grant (for those who want to become teachers) and the Pell Grant.
What to Expect
About two-thirds of college expenses are paid for by savings, loans and current income. Financial aid from the government, scholarships and university grants and scholarships only pay for about a third of college costs. Saving for college ahead of time is therefore a good way to cut down on the amount of loans your child or you will have to take out to pay for college.
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