How to pay for college: Ways you can financially prepare for college

Getting accepted into college is a major accomplishment. The question is: How much is it going to cost? If you’re thinking about how you’re going to pay for college, use our list of long- and short-term strategies to help you secure the funds for a college education.

Paying for college

The cost of tuition is skyrocketing, and with the average student borrower carrying a student loan debt of $39,351 many parents have reason to worry, particularly those who are in middle- and lower-income brackets.¹ But with a little flexibility and financial preparation in advance, you can help your child achieve his or her dreams for the future.

Long-term ways to save for college. 

• Section 529 Plans, college savings plans, and prepaid tuition plans.
  These plans may offer tax advantages and, in the case of prepaid tuition plans, the ability to pay in installments over a longer period may exist. Note, money from a 529 plan must be applied to qualified educational expenses; there will be adverse tax consequences to nonqualified withdrawals. Additionally, there could be state tax benefits for investing in your in-state 529 plan, if your state sponsors one.
   
• Coverdell Education Savings Accounts (ESAs).
  Education savings accounts allow you to make contributions for your child until he or she is 18. Contributions may grow tax deferred, and may also be withdrawn, free from federal income taxes, for any qualified higher educational expense incurred by your child before age 30. There are maximum contribution limits for Coverdell ESAs. Money from Coverdell ESAs can also be applied to K–12 educational expenses. The owner of a Coverdell ESA can self-direct the investments on behalf of the Coverdell ESA.
   
• Uniform Transfers to Minors Act (UTMA) and The Uniform Gift to Minors Act (UGMA).
  These custodial accounts allow you to set up an account in your child’s name. You can make transfers to an UTMA/UGMA account on a per-child, per-year basis. Check the IRS website for current contribution limits; check as well with your tax advisor prior to making any decisions. Note that the assets in the UGMA or UTMA are owned by the minor and become available when the minor reaches the age of 18. Assets transferred to the UGMA or UTMA are irrevocably transferred to the minor. A UGMA or UTMA account can affect a child's ability to qualify for financial aid, because the child owns the assets that have been transferred to the account.

Short-term ways to help pay for college.

• Scholarships
  These are available through colleges as well as from many businesses, and from private and public organizations. Remember that a scholarship may affect your child’s financial aid offer from a college. Scholarships are available for everything from sports and science to academic merit and music.
   
• Work-study job
  Working part-time can help students be more effective and organized, as well as helping them develop important skills. It can also help your child pay for college costs, such as books, supplies, and tuition. Summer is a great time to earn even more money for the coming school year.
   
• Working as an RA
  Many colleges offer free room and board to resident advisors (RAs). This can amount to huge savings if your child plans to live on campus. RA positions typically are available only to students who have already completed their freshman year and have maintained a minimum GPA.
   
• Additional ways your child might be able to save.
  1. If possible, live at home and commute to college.
  2. Rent an off-campus apartment and share it with friends.
  3. Save money on a meal plan by brown-bagging it.
  4. Save money by taking public transportation.

How to plan for college success

Did you know the average student takes about 4.5 years or longer to graduate?² This can add thousands of dollars to tuition bills and delay the beginning of careers. So how do you ensure that your child graduates on time? First, before your child commits to a college, ask, “Will my child be able to arrange his (or her) schedule so he (or she) can graduate in four years?” 

Next, make sure your child takes as many core classes as possible during the first year of college. This will also allow your child to give different majors a “test drive” and see which might be a good fit. After that, urge your child to decide on a major early and arrange his or her schedule to make sure that all requirements can be met.

Talk to others in your community, including parents, your child’s high school guidance counselor, teachers, and his or her prospective college's financial aid office.

Related Articles

¹ https://educationdata.org/student-loan-debt-statistics

² https://nces.ed.gov/fastfacts/display.asp?id=569

Neither New York Life nor its financial professionals and affiliates provide tax advice. Please consult your tax advisor to find out how the general topics discussed in this article would affect your personal tax circumstances.