Traditional and Alternative Ways to Afford College


Besides saving for retirement, saving for college is the most discussed wealth planning topic when working with families. A child born in 2018 who begins kindergarten in the fall of 2023 would attend college between the years of 2036 and 2040. According to CollegeBoard’s college cost calculator, if that child attends a public, in-state four-year college, and if the annual price increases at the same rate as it has over the last 30 years (+5.4% per year), the aggregate cost of the child’s college education (including tuition, fees, and room and board) would be $237,262 or $59,315 per year.

With numbers such as these, you can see why families are concerned about how save for college. Below are some of the traditional methods to save for colloege you may be familiar with, along with some alternative methods.

Traditional Methods for Saving for College

There are pros and cons to all of these traditional ways to save for college.

College coaching: This can be an extremely expensive option with some coaches charging $950 an hour or up to $10,000 per year with no guarantees and a good amount of effort on your part. Beware of anything that says “free,” as salespeople stand ready to dismantle your well-crafted wealth management plan.

Live at home and/or attend a community college: This is a great option, especially for students who have no idea of what they want to do. As noted above, college can turn into a very expensive place to find yourself. However, if your child is academically gifted and driven, this may not be the best option for them.

529 savings plan: A 529 savings plan is still one of the most tax-efficient ways to save since assets grow tax-free if used for qualified education expenses. Additionally, some states offer a tax credit, which also helps.

The downside of being invested in the market is you never know when the next correction or major pullback will occur. Think about a college freshman starting in 2008 whose parents had four years saved only to see the college fund get cut by 50%. A 529 plan ideally should be managed by a professional who can adjust asset allocations and try to reduce the risk parents may not be thinking about.

Pre-paid tuition: For families who are trying to balance multiple financial priorities, it can be very difficult to come up with the annual amount needed to pre-fund the cost of college. While your child could attend any college they choose, this option will not cover the full amount if your child chooses to go to an out-of-state school.

Gifting strategies: You can ask friends and family to cover portions of the school cost for your child through outright gifts of money, inheritances or paying expenses directly to the college your child is attending.

Student loans: This is the default choice most families turn to when all else fails.

There are also alternative options families at any income level can choose to help reduce the cost of college or avoid having to pay the entire bill on your own. 

Begin by Completing the FASFA

Before discussing alternative options, we need to spend some time on the all-important Free Application for Federal Student Aid (FAFSA). According to NerdWallet, over 1 million students who would have been eligible for a Pell Grant never filled out the FAFSA. The maximum Pell Grant award for the 2017-18 school year was $6,095 and, unlike a loan, a grant doesn’t need to be paid back. Additionally, some merit-based scholarships offered by colleges and universities require applicants to file the FAFSA.

The deadline to complete the FAFSA form is June 30. However, many colleges have earlier deadlines for applying for state and institutional financial aid, so it is highly recommended that you fill out the form as soon as you can to ensure you don’t miss out on any aid.

Your wealth advisor should assist you in completing the FASFA application since most are done wrong in that parents over-estimate income and assets. Additionally, eligibility for student aid does not carry over from one academic year to the next, so you need to file the FAFSA every academic year. Variables such as your family’s income level and the number of family members enrolled in college at the same time will affect the amount of aid a student is eligible to receive.

Alternative Planning Options

With some grit and hard work by both the student and parents, the following alternative college planning options can help lower the actual costs of college without having to save more or reduce the potential use loans.

Advanced placement (AP) options during high school: Advanced placement (AP) is a program in the United States and Canada created by the College Board that offers college-level curricula and examinations to high school students. American colleges and universities may grant placement and course credit to students who obtain high scores on the examinations. AP credits directly result in free tuition; however, you must have a driven student who is willing to put in the time academically to pursue this option.

Placement exams offered by colleges: Along the same lines as the AP program, find out if the college your child wants to attend offers placement exams to test out of specific classes. 

Local college classes for high school students: In these types of programs, students work simultaneously toward their high school diploma and their bachelors or associate degree. With some programs, there is no cost to the student. Again, this is an option that offers free tuition but requires a student to be driven academically.

Merit scholarships: If you have the persistence to find free money for college, Google is a great place to start your search for applicable scholarship opportunities. Local community organizations such as Lions, Optimists and community foundations are great resources for scholarships that may or may not be academically based. Another technology tool is Scholly. It costs $2.99/month and will help match your child with national scholarships.

Negotiate with the admissions department: Negotiating tuition is a viable strategy to pursue, and all it takes is a simple phone call. State schools may be more difficult than private schools, but I have seen first-hand where this works, especially when dealing with out-of-state tuition. Lesser-known schools are more likely to negotiate, especially if your child’s academic record will boost the school’s numbers.

Apply to highly selective schools: While this option may seem to go against the grain of lowering the cost of college, going to a well-known, expensive school sometimes may be cheaper than going to a public school. If your adjusted gross income (AGI) is less than a certain amount, higher-cost schools will give discounts. Additionally, at more expensive colleges, higher income families may be considered lower income relative to the cost to attend and be eligible for financial aid. The more selective a school may be, the lower the net cost may be.

Parents Need to Have a Conversation

Parents can be on opposite sides regarding how much support they are willing to provide their children’s college education. While every situation is unique, it often comes down to two key questions:

  1. How much do parents want to contribute? Trying to answer this question may result in some tense conversations because each parent may have their own idea on how much to contribute.
  2. What capacity do parents have to contribute? While parents might want to contribute to a college savings plan, it can be difficult with other pressing financial priorities such as retirement, health care and other cost of living considerations.

Families should take a balanced approach and consider what portion of saving for college should be part of their complete wealth management plan. Remember that when traveling via airplane, in the event of an emergency, always put the oxygen mask on you first, then your child. Your child can always get a loan for college, but you can’t get a loan for retirement. However, there are ways for families to put their kids through college while limiting the use of loans or eliminating the need for them altogether if the parents and child can work together to create a winning game plan.

Recent articles by Paul Fenner: The Importance of Having a Flexible Financial Plan

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