College may seem a long way off when your student is in middle school, but it's time to start preparing to pay for education after high school. Use these tips to help you.
Know the goal.
Although the cost of attendance tends to increase yearly, it's important to have a realistic idea of the actual expenses your student will face. Discuss the possible types of institutions your student may consider in a few years, and then explore the current costs. A college website generally provides set figures for tuition, fees, housing and meals and average numbers for transportation, books, materials and personal expenses.
The cost of housing and meals can be as much or more than annual tuition and fees. Be sure to understand if the types of institutions your student may attend require students to live on campus or purchase a meal plan for a year or more.
Understand—and discuss—your financial situation.
Help your student consider and apply to schools your family can afford by being honest about your current and future situation. Know how your assets will be considered when your student applies for financial aid and how much you are able to help your student financially. A college's net cost calculator will provide an idea of actual costs for your student for the current year, but be aware that certain circumstances, like a family-owned business, may skew results.
Evaluate your savings options.
Whether or not you've already put aside money for your child's college expenses, learn about the potential savings options and the benefits and advantages of each. The most popular options include:
- 529 plans, also called college savings accounts.
- Education Savings Accounts (ESAs), such as Coverdell.
- Saving accounts.
- Savings bonds.
- Certificates of Deposit.
- Stock, mutual fund and other investment accounts.
- Employer-sponsored education plans.
- Trust funds and other inheritance or gift options.
Plan to minimize or avoid borrowing.
The cost of a college education has risen to a point that it's often not feasible for a student to finance it completely with student loans. Become familiar with these points:
- Federal student loans carry an annual limit, with dependent students currently limited to $5,500 in total Direct Loans for the first year.
- Most private student loans require a creditworthy cosigner, who is equally responsible for the debt with the borrower.
- Student loans are generally not dismissed through bankruptcy and remain the borrower's and cosigner's responsibility even if the student doesn't complete a degree or obtain a job that pays well.
- Student loans accrue interest every day, and any unpaid accrued interest may be capitalized, or added to the principal balance, at certain times. The new balance will then accrue interest daily.
- The total amount to be repaid is usually more than the total amount borrowed, due to the daily accrual of interest and any origination, late or other fees.
- Experts recommend total borrowing for a student's education be limited to no more than the expected first-year salary.
Prepare for student contributions.
Your student can help pay for college in several ways, beginning now. Discuss these with your student to get started.
- Earning money before college. Will your student be able to work during high school? Consider transportation issues, available time outside of school and activities, and the student's abilities.
- Earning money during college. Again, your student's ability to earn money during college will depend on several factors.
- Earning scholarships and grants. These sources of college funding don't need to be repaid. You can help by investigating scholarships that are currently available and reviewing the eligibility requirements. Your student can then take any steps needed during high school to ensure consideration.