How to Help Your Child Pay for College (Without the Debt!)

According to CollegeBoard data, the average tuition for four-year colleges was over $10,000 for in-state students and a whopping $27,560 for out-of-state students per year. Add the approximate $12,000 for room and board and it’s enough for you to want to transition to a rice and beans diet! 

While the price tag may be shocking, it’s not something we can just run away from. The more time and planning we put into preparing for these prices, the more successful we - and our children - will be. 

Planning for college costs in advance can reap tremendous benefits for your child. Instead of having an average of $28,950 in student loans to tackle when they graduate, they can put their money to work for their futures. Without college debt they can use the money they earn to start investing in their retirements, continued education, or even begin saving for a home. 

If you’re interested in how to avoid college debt and want to make sure your child isn’t one of the 43 million Americans with student loan debt, read on to find out what you can do to help!

Save Early 

If your children are still young, you have the benefit of time. Putting money away early allows you and your kids to maximize the impact of compound interest. Contributing a small amount - even $50 a month - to a tax-advantaged account can set you and your child up for major success. 

Even if your child is older, it’s never too late to start contributing. If your child has a part-time job, you can encourage them to contribute and offer to match (or double) their contributions. Read here for more tips on teaching your kids good money habits. 

Here are a couple of my favorite accounts to save money for your child’s education. 

529s 

A 529 savings plan is a fantastic, tax-advantaged way to save for your child’s education. Your contributions grow tax-free and can also be taken out tax-free - if they are used for qualified education expenses. 529 plans vary state by state so be sure to understand any state-specific laws that may be applicable to your family. 

Contributions to a 529 can make great gifts! Your child may not appreciate it now, but they will certainly appreciate Grandma and Grandpa’s steady contribution come time for college. Whoever contributes to a 529 may also qualify for state tax deductions! 

Brokerage Accounts 

Alternatives to a 529 plan are custodial accounts called UGMAs and UTMAs (Uniform Gift to Minors Act and Uniform Transfers to Minors Act). Money in these brokerage accounts can be invested in stocks, mutual funds, etc. These accounts are controlled by the parent until the child is 18, when it is then fully given over to the child. 

Unlike 529 plans, money in these brokerage accounts does not have to be used for education expenses, though it certainly can be. The flexibility these accounts bring makes it an attractive option.

Custodial Roth IRAs

This option is one of my favorites and certainly an incredible option for small business owners. The key to Roth IRAs is that the contributions must be from earned income. Your child can earn income from working in your small business in a variety of ways. Cleaning the office, doing business errands, transcribing video calls, modeling, data entry, the possibilities are endless! 

With a Roth IRA, the contributions are taxed up-front - however, unless they earn over $12,000 per year, they won’t owe any federal taxes. The money then grows tax-free in their accounts. Your child can contribute up to $6,000 per year to their Roth IRA. 

Typically you cannot access money from your Roth IRA until age 59 ½ (without paying a 10% penalty), but the IRS will make an exception if the funds are used for higher education.

Apply For Financial Aid 

Besides saving (which everyone should take advantage of) it’s also worth checking out what grants or scholarships may be available for your kids.

Online FAFSA Application

The Free Application for Federal Student Aid (FAFSA) is an application for federal aid. Money awarded through FAFSA does not need to be repaid - it is not a loan. Applying is easy and it can be done online. Applications open in October of the previous year - the online FAFSA application deadline for 2022 is June 30th. 

The amount of federal aid you will receive is dependent upon multiple factors. Your year in school, enrollment status, the cost of attendance and your expected family contribution all play into the available aid amount. 

Scholarships

Just like with saving money, you’ll want to start looking into scholarships early - ideally when your child is a freshman in high school. My favorite scholarship apps are Scholly, FastWeb, and RaiseMe. Set up a schedule and aim to apply for as many scholarships as possible - while still maintaining a realistic pace. Gather your child’s transcripts and personal recommendations, and encourage them to practice writing essays.

Work-Study 

A federal work-study program helps students pay for their education through part-time employment. Students must apply for these jobs at their school and are paid for the hours worked. The amount earned cannot be more than the amount awarded for that year. 

Consider Alternative Options

Four-year universities often come with a hefty price tag, especially if your child wants to leave their home state. Fortunately, there are many alternative options when it comes to transitioning into the working world.

Community College

Completing an associate’s degree at a community college or even just completing a few years before transferring to a university can bring significant savings. Community colleges cost an average of $3,660 per year in tuition for in-state students. Financial aid is still available for students who want to attend community college. 

This school option also allows incredible flexibility to students who would like to work part-time or who are not entirely sure what degree they want to pursue yet. Smaller class sizes and the opportunity to earn certificates are also great benefits. 

Trade School and Vocational Education

One of the biggest benefits of a trade school or vocational education is that your child can complete their training and education quicker than with a four-year college. This means they can enter the job market sooner and start earning a steady income. 

Having a specific niche can also create job security, but it can also mean less flexibility than that of a college graduate. 

Entrepreneurship

If your child already has a particular set of skills or interests, starting a business may be the perfect alternative to a traditional four-year degree. Eager students with a passion for their trade can find significant savings by jumping into the “real world” after high school. 

Perhaps they could even jump into your business as a junior partner and they could learn from your mistakes and successes. 

Other Money-Saving Hacks

After saving up money, finding the perfect education option for your child, and applying for as many scholarships and grants as possible, it’s time to consider other money-saving hacks. 

Housing

As we mentioned above, room and board can be a very expensive part of your child’s college education. Consider letting your child live at home or with a family member or friend - depending on what makes sense geographically - while they complete their education. Educate your child on the housing expenses and look at different options together. Living off-campus and having roommates can also drastically reduce housing costs. 

Food

Don’t forget to look at the school’s meal plan options and see if your child can get by on a mid or low-range meal plan. Or if they’re going to be living off-campus, teach them how to meal plan and cook before they leave the nest. 

Textbooks

Textbooks and materials can also be a major expense. Consider looking online for used options or asking if an older edition will be acceptable. Tell your child to keep the textbook in great shape so they can re-sell it when the semester is over. 

Let Financial Fitness Coaching Guide You In Saving For Your Child’s Education

Among all the things you have to be prepared for as a parent, paying for your child’s education is one of the biggest. Giving your child a sound financial foundation is one of the greatest gifts you can give them. 

At Financial Fitness Coaching, we want to empower you with the knowledge you need to take this financial journey. To see how we can help you and your child, email me at kristen@financialfitnesscoaching.com or simply schedule a free 20-minute Discovery Call on my calendar.