How to Pay for College

As the college acceptance letters arrive, students are thrilled. However, while parents and grandparents are proud, they may also feel a little anxious about footing the bill for what they know is an important credential in today’s labor force.

Before you sign on a dotted line, or heaven-forbid, raid your retirement account or borrow against your house, it’s time for a financial reality check.

Here are the basic sources available to fund higher education, according to the Common Application, a not-for-profit member organization of more than 700 colleges and universities in the U.S. and around the world.

• Federal Government: The Department of Education awards about $150 billion a year to more than 15 million students in the form of federal grants, student loans, and work-study programs.
• State Government: Your home state offers various types of financial aid. You might be eligible, even if you’re not eligible for federal aid.
• Colleges and Universities: Many colleges and universities provide financial aid and scholarships from their own endowment funds. There may be opportunities for a particular field of study, so be sure to check in with the various institutions where your child has been accepted.
• Financial Aid: You have probably completed the FAFSA (Free Application for Federal Student Aid), but in case you have not done so, get cracking. According to NextGenVest.com, a company that helps students manage the college selection and financial aid process, “approximately $2.7 billion is left unclaimed in federal aid by students who don’t fill out the FAFSA.”
• Scholarships: Individual colleges, as well as private funders, award scholarships in recognition of academic performance, athletic excellence, a commitment to community service, or other unique talents.
• Savings: 529 plans, Coverdell Education Savings accounts, UTMA/UGMA, savings bonds, investment accounts…the list goes on. If you were fortunate enough to be able to sock away money for your child or grandchild, it’s time to milk the cow!

With your college financial offer in hand, do not assume that it is set in stone. If your family finances have changed since completing the FAFSA forms, perhaps due to a job loss, high medical expenses or caring for an elderly parent, you can appeal to get a better package. Be sure to gather the supporting documentation necessary to prove that the changes have occurred.

Higher Education Loans

You’ll be tempted to offer help by assuming a loan through a federal or private Parent PLUS loan. Before you do so, know that you will be 100% responsible for the loan, regardless of whether or not the student completes his or her education or can find a job. Additionally, PLUS Loans are not allowed to be forgiven under the Federal Teacher Student Loan Forgiveness Program or in most cases, under the Public Service Loan Forgiveness Program.

If that’s not enough to get your attention, consider this: According to a Consumer Financial Protection Bureau report released in January 2017, older Americans are the fastest growing segment of student loan borrowers. From 2005 to 2015, the number of Americans age 60 or older with one or more student loans quadrupled from about 700,000 to 2.8 million, and the average debt load owed by an older borrower roughly doubled from $12,000 to $23,500. The CFPB found that about three-in-four older borrowers with student loans used them to finance their children’s or grandchildren’s college education.

A college education is an important way for your child to be competitive in the work force, but it is imperative that you not put your financial future at risk with an obligation that may prove to be your undoing, as you approach retirement. Working with a CFP® professional can help you figure out a plan for paying for college while balancing your other financial goals.