College comes with a big bill – here are some tips on how to make it more affordable.
$1.6 Trillion Student Loan Debt
The Federal Reserve estimates that Americans held $1.6 trillion in student loan debt as of the second quarter 2020. According to the Investor Education Foundation, nearly 50% of Americans who have student loan debt regret not choosing a cheaper college.
A 4-year college education may cost over $150,000. According to the College Board (link opens in new tab), for the 2019-20 school year, average tuition and fees for a public 4-year out of state university was $26,820, and room and board cost $11,510.
How can I minimize out of pocket costs for college?
There may be actions you can take to minimize your out of pocket costs for college.
- Begin saving now. If your student is still several years from college, consider contributing to a 529 plan. These plans are tax advantaged when used for college expenses. After tax contributions are made, but when withdrawn for educational purposes, the growth is tax-free. Take advantage of the time-value of money by starting to contribute when your child is young. Ask your financial advisor for additional details.
- Check out this post on giving the gift of education.
For Older Children
- Examine your family’s assets. Often, assets in the student’s name are expected to be depleted first towards college expenses. Regarding family assets, typically a parent’s primary home principal and retirement accounts are excluded from consideration.
- Look into grants and scholarships which don’t need to be repaid. Many organizations offer special grants and scholarships that your student may qualify for. Ask the guidance counselor at your student’s high school for suggestions.
- Complete the FAFSA or CCS financial aid request forms. These forms typically use tax returns from 2 years earlier. If your family’s situation has materially changed since then, you’ll need to complete additional paperwork from the school.
- Get a job. Encourage your high schooler to get an after school job. By working on weekends and over holidays, they can save up money towards college, and learn valuable life skills in the process, including time management, responsibility, and hard work.
Maybe most important, have a serious, realistic conversation with your student to discuss expectations with your student before they get their heart set on a school that’s unaffordable. Talk to your student about what your family may be able to contribute towards their college costs.
Many experts recommend only taking out as much in student loans as the student expects to earn in a year after they graduate. Others say future monthly payments should only consume 10% of after tax take home pay. For example, a graduate earning $50,000 might afford a monthly payment of $270, or college debt of about $26,000 at the current undergraduate federal student loan interest rate of 4.53%.
Either way, talk with your student about the cost of college, the implications of student loans, and what’s realistic given your family’s budget and situation.
Get an Associate’s Degree First
A two-year associate’s degree from a local community or junior college is typically significantly lower than the cost of a 4-year school. Students can transfer to a more prestigious 4-year school to complete their degree, while getting the prerequisites out of the way in a more affordable manner.
Consider the Trades
A 4-year college degree is not the best route for every person. Becoming a skilled tradesperson could be a great alternative for some. Mike Rowe, famous for his tv shows and podcasts, started the Mike Rowe Works Foundation (link opens in new tab) to give scholarships to people interested in getting educated in the trades. From their website: “We recognize that a good education doesn’t always require a four-year degree. That’s why we look for people who aren’t afraid to learn a useful skill and work their butts off.”