The Different Ways Families Pay for College

The Different Ways Families Pay for College

How to pay for college is one of the biggest financial concerns of families today. And although students assume some of the responsibility for the cost, the majority of it often falls to the parents. 

There are several ways to plan and pay for your child’s college education, including 529 plans, regular savings, inheritance, income, scholarships, and loans. Many families end up using a combination of methods to foot the bill.

From parent Susan M:

We’re planning to pay the first two years through our (parent) savings, my daughter’s savings, parent cash flow by picking up extra jobs and cutting expenses, and my daughter’s cash flow from her summer job. Then, either in the spring of her sophomore year or fall of her junior year, she’ll co-op, so she can start to use her co-op earnings for her living expenses. We will pay the rest. (Note: In a co-op program, students usually spend anywhere from three to twelve months–depending on the school–working either part or full-time while cutting back on their school work or not attending classes. The goal is to gain real-world experience and defray the cost of their education.)

From parent Laura M:

We’re using cash flow and savings, and sending our daughter to the school that offers the best aid package. She’s also taking the $5,500 in student loans every year because we want her to have some financial skin in the game. 

Regardless of where you are in the planning process, here are some helpful paying-for-college tips, along with real-life strategies shared by members of our Paying for College 101 Facebook group. (Strategies are edited for clarity and flow.)

 

Federal Loans and Federal and College Need-Based Grants

Many parents rely on federal Direct Loans to cover a percentage of their child’s expenses. These come in two forms: either as subsidized loans (typically available to those with more demonstrated need) or as unsubsidized loans, for those families without demonstrated need. It’s important to arrange and maximize these types of loans first, before exploring any other student loan options. That’s because Direct Loans are the only loans that students can borrow without needing a cosigner, and they have one of the lowest interest rates available to students. 

 

How Do You Qualify for Federal Loans?

The student of any family that submits FAFSA is eligible for a Direct Loan. Access to federal loans is one of the primary advantages of filling out FAFSA. 

From parent Gretchen M: 

We’re going to take $27,000 in Federal Loans (and will put $75 a week towards paying them off).  We skimped and saved every penny we could from the time our daughter was out of daycare. (We have a 10-year-old car with 170,000 miles on it.) My daughter was responsible for her first year….and she worked hard for it. 

For many students who qualify, Pell Grants can be a way to get more money for college, with the added benefit that a Pell Grant doesn’t have to be paid back. Of course, it’s not just the federal government that offers need-based aid; plenty of campuses will mix grants and scholarships into the financial aid package.

 

Parent PLUS Loans and Cash Flow Solutions

Many families are willing to pay for college expenses but want to stretch out the payment process. If you have problems with cash flow but expect to be able to cover the remaining cost of attendance over the next few months, many colleges offer payment plans, either for free or for a nominal fee.

For parents who’d like to help shoulder the cost of college but prefer to spread it out over a matter of years, Parent PLUS loans provide that option, as well as the option to borrow up to the full cost of attendance. Keep in mind that while a Parent PLUS loan can’t be transferred to the student, many families will refinance in the student’s name after graduation. 

From parent Claire S:

We have the most deductions taken out of our pay and use our tax return each year for tuition. We’ve cut way back on spending so we save money, and our kids work in the summer. Whatever is leftover comes from Federal student loans and Parent Plus loans 

From parent Heather D:

We’re cash flowing four kids through college. We use my whole salary to cover college and extracurricular activities. We have two jobs each. When our fourth child graduates from college we can quit our second jobs and double down and finally save for retirement.

 

When To Consider Private Student Loans 

Beyond scholarships and Federal loans, there are private loans. Parents usually co-sign for these types of loans. Almost all of them offer a deferment during enrollment, meaning that a student won’t have to begin paying back the loan until they graduate, or until they finish graduate school if they continue with their studies. Interest, however, accrues from the time the loan is dispersed. As with any loan, it’s important to have a conversation with your child about how interest rates work, and the expected amount they will need to pay each month.

If you’re researching borrowing money for college, College Ave Student Loans can help. College Ave offers a wide range of private student loan options to help your family pay for college. Besides competitive interest rates and multiple repayment options, they offer useful tools like their free credit pre-qualification tool which allows you to see whether you qualify for a loan and what interest rates you can expect without impacting your credit score. 

From parent Lauren S:

I’ll be taking loans. Period. I have my own loans…It (affordability) is all a matter of perspective. 

 

529 Plans and Other Kinds of Savings

Another way parents are saving for college, and then paying for it is with a 529 College Savings Plan. These plans allow you to take out the money tax-free provided you use it to pay for college-related expenses.

Some costs (such as transportation) may have to be paid through other means, such as savings.

From parent Michelle M:

I have two 529 plans for each of my children. One my parents set up, and one I set up–we have two children and four 529s. I’m hoping to cash flow as well. I have a decade to keep saving for my son and 15 years for my daughter. I budget carefully. We don’t take vacations. For holidays I ask for stocks for the children or 529 contributions. My kids also will only look at in-state schools, and they will commute to cut expenses.

From parent Lauren S:

I started investing in a stock portfolio, and in cryptocurrency. 

From parent Christine H:

We’ve been saving since the day our daughter was born. Little by little. I suggest you live below your means and pick a school within your means. We got some money from the school, but will lose most of it next year. We do expect her to take out some loans in her name…We will try to minimize those if we’re able.

From parent Kathleen M:

We refinanced our house and took cash out. 

From parent Christine A:

We only have one child. Neither my husband nor I went to college, so it’s our dream that our daughter can go without worry. We’re paying for her full undergraduate degree from 529s and stocks. Anything left over can be used for graduate school. We sacrificed many vacations and a nicer home to be able to do this.  

 

How Grandparents or Inheritance Help Pay for College

Not all of us can have a rich uncle, but extended family members are often happy to help, either through a gift or through inheritance. Even if it isn’t enough for everything, a grandparent’s gift can help subsidize other sources, such as savings.

From parent Rima K:

We hope to pay from savings/inheritances and cash flow. If they go to in-state public schools we should be able to do it. If they want private schools, then likely some sort of loans will be in the picture, within limits. They both know the max we will contribute.

 

What Are Merit Scholarships and Private Scholarships?

Merit scholarships are awarded to students based on their achievements–academic, extracurricular, or talent. Schools award merit scholarships from their own institutional funds and this type of scholarship will likely be the largest source of scholarship money for most students. 

Private scholarships are from nonprofits, businesses, or individuals. While big-name private scholarships may pay more, the odds are greater for finding smaller scholarships within the student’s own community. College Ave Student Loans offers a $1,000 monthly scholarship. They choose one winner each month, so you can enter monthly for a chance to win.

Keep in mind that for financial planning purposes it’s best to formulate a strategy based on what you realistically can afford for pay. Families can estimate merit scholarships by seeing if the college shares specific criteria on their website, such as how the University of Alabama shares this information. 

If a college is not as transparent about how they offer merit scholarships, look for the school’s Common Data Set–specifically, the number of students without need receiving merit scholarships, and the average amount of a merit scholarship. Road2College’s College Insights tool allows families to easily find all of this information. You can also do reverse look-ups by entering search criteria. You’ll receive a list of schools where your student is most likely to receive merit scholarships. 

 

What Are Public Scholarships?

For students in some states, like Florida or Georgia, heavily subsidized tuition is available if they want to stay in-state and go to a public university. In Florida, for example, Bright Futures scholarships pay for a portion, or in some cases all, of a student’s tuition and fees. Note that these do not cover room and board. Still, for some families, it’s a great deal and a great opportunity. 

From parent Daniella S:

Mine will be going to a Florida state school, and we have a Florida Prepaid College Plan and a Bright Futures scholarship. I’ll help with living expenses for the first two years, then they’re on their own for the most part. I’m not going into debt and neither will they, unless they absolutely choose that. 

 

Can Students Work During College?

For students today, it’s much more difficult to cover a substantial amount of their own education by working during school. That said, a part-time or summer job can still be very helpful. 

From parent Sandy H:

I live in the smallest house in my neighborhood. I’m sacrificing vacations and extras. My children are helping with summer jobs and part-time jobs. They both have large scholarship/aid packages from private liberal arts schools. They have to keep their GPAs at 3.0 or above to keep their scholarships. I never got a dollar from my family for college, and my grades really suffered from all the hours I had to work to pay for college. I want them to be able to enjoy college and do well academically.

There’s more than one way of making the dream of sending your child to college a reality. And while it’s true that only a few lucky families will have a single solution to the challenge of paying for college, every little bit from every little source adds up. So do your research, then set a financial goal and craft a plan that your family can work towards together.  

This article was sponsored by College Ave Student Loans.

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Melissa T. Shultz

Melissa T. Shultz is a writer, and the acquisitions editor for Jim Donovan Literary, an agency that represents book authors. She's written about health and parenting for The New York Times, The Washington Post, Newsweek, Reader's Digest, AARP’s The Girlfriend, AARP’s Disrupt Aging, Next Avenue, NBC’s Today.com and many other publications. Her memoir/self-help book From Mom to Me Again: How I Survived My First Empty-Nest Year and Reinvented the Rest of My Life was published by Sourcebooks in 2016.
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