Great Ways to Fund a College Education
Even If You're Not a Millionaire
What's the best way to pay for college? No secret there. Start early, invest often, and let the twin engines of the stock market and compound interest deliver big returns over a long period of time. Or if you're a millionaire, walk over to your desk, pull out your checkbook, and write a check. Either way, you've got it covered. But if you're not fortunate enough to be able to employ one of these strategies, fear not. Look into the options below and boost your own college-planning efforts.
Financial Aid
Take the time to explore potential aid options, and don't assume you aren't eligible. In addition to grants, scholarships, and work-study programs, student and parent loans are offered at favorable rates and repayment schedules. These include the federal Parent Loan for Undergraduate Students (PLUS). In 2008-09, 45 percent of undergraduate aid was in the form of federal educational loans. Your first step should be to fill out a Free Application for Federal Student Aid (FAFSA) form. Visit the FAFSA website at www.fafsa.ed.gov or call (800) 4-FED-AID for an application. For more information on the FAFSA, check out How to Complete the FAFSA. To read more on financial aid options, look at How Financial Aid Works. To help determine your estimated Expected Family Contribution (EFC), check out our online EFC Calculator.
Scholarships
Your child doesn't have to be valedictorian or quarterback to receive a scholarship. Many are based on a particular school, a field of study or career path, or even ethnic background. Many corporations, foundations, professional and service organizations, and community groups offer scholarships, too. Check out the College Board's Scholarship Search. Also, the Internet and public library are great resources for further research. Talk to your child's high school or college guidance counselor for help, and start as early as possible to improve your odds. For more information on this topic, read Where the Scholarships Are.
Tax Breaks
You may be eligible, if you meet income requirements, for tax deductions and credits toward tuition, fees, and student-loan interest. Keep in mind, however, that tax credits operate more like rebates than discounts. They're not applied directly to tuition bills, but are instead made available once you've paid tuition. Read more in Tuition Tax Credits.
The Hope/American Opportunity tax credit for college tuition offers up to $2,500 a year for students enrolled at least half-time in a program leading to an undergraduate degree. The credit is partially refundable, which means up to $1,000 could be paid back to lower-income taxpayers when the credit exceeds their total tax bill. For those who do not qualify for the Hope/American Opportunity credit, the Lifetime Learning credit provides a maximum annual credit of $2,000 for tuition and fees.
Borrowing From Your Retirement Plan
In many cases, an employee can borrow from his or her retirement plan in the form of a loan. Is this a good idea? Frankly, no. If you withdraw funds early from a Traditional or Roth IRA, you'll open the door to stiff IRS fees and penalties. Plus, you'll be taking away money that was fueling your retirement savings portfolio. To read more on this topic, check out Borrowing from Your 401(k): Think Twice.
Community College
Given the high price of both public and private four-year colleges, many students take advantage of the community college system by attending for two years and then transferring to a four-year college to receive their degrees. This can be a substantial savings, especially if your child lives at home for the first two years of college.
Postcollege Employment
In certain career fields, such as nursing and teaching, students may have their loans forgiven or tuition paid in exchange for committing to a period of work in a specified place upon graduation. College advisors can provide more information on these kinds of programs.
ROTC/Armed Forces
For students who commit to military service after finishing school, the benefits range from partial to full payment of undergraduate and graduate costs. You can find more information on various military careers and the educational benefits available at Military.com and the Veterans Benefits Administration website.
Affinity Programs
Savings clubs such as Upromise work like frequent-flier programs. You get points for purchasing goods and services from participating merchants. These points are translated into money that's invested in a state-sponsored college savings plan. Because merchants pay to participate in the program, there is currently no charge to enroll. To learn more, read Savings Clubs Can Supplement a College Fund.
