Parents Guide to Financial Planning
Can your child afford to go to college? The answer is yes, but you need to carefully plan together how to pay for it. Remember:
- Most full-time students at four-year colleges get financial aid to help them pay for college.
- The sticker price of a specific college is usually higher than what most students would actually pay, thanks to financial aid.
- You can save for your child's college costs tax free.
- There are many ways to cut college costs—for example, by choosing a low-cost community college.
- Students who earn bachelor's degrees can expect to have higher incomes, on average, than those with only a high school diploma.
Saving for College
Many families put aside money from their paychecks for their child’s future college costs. Whether or not you’ve already started saving, you should know that there are special savings accounts that can benefit you: 529 college savings plans and Coverdell Education Savings Accounts (ESA).
With 529 plans and Coverdell ESAs, you earn interest on the money you put in, just like any other savings account. But unlike regular savings accounts, the money you contribute to the accounts, and the interest, won't be taxed. That means you’ll have more money for college.
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For Students: Your College Savings Options
Understanding College Costs
College costs may include:
- Tuition and fees
- Room and board
- Books and supplies
- Personal expenses
Net Price vs. Sticker Price
Students and parents are often dismayed by the prices they see listed on college websites. The truth is, most students don't pay the published price, or sticker price, for their college. When you take into account the aid—grants and scholarships—a student gets, you'll often find they pay a lot less. This is called the net price.
To get an estimate of your net price for a particular college, use the college's net price calculator.
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For Students: Understanding College Costs
For Students: Focus on Net Price, Not Sticker Price
For Students: Things to Know About Net Price
Expected Family Contribution
The expected family contribution (EFC) is a dollar amount that colleges use to help them decide how much financial aid they’ll offer your child. Your family's EFC is calculated using information you and your child have supplied on financial aid forms.
Keep in mind that your EFC is just an estimate of what your family can afford to pay for college. It's meant to be used as a base by the government or the college to make financial aid decisions. It’s not like a number on a bill—it doesn’t reflect the exact amount you're expected to pay.
Keeping Costs Low
Students have many options for keeping their college costs down.
Living at home. Your child can live with you while they go to a nearby college. That way, they'll save on room and board.
Choosing a community college. These two-year colleges usually have relatively low tuition. Your child can:
- Earn a two-year associate degree or certificate and then enter the workforce.
- Use community college as a stepping stone to a four-year bachelor's degree by transferring to a four-year college after one or two years.
Graduating from college early. If your child earns enough college credits to graduate in less than four years, they'll save money on tuition. To do this, they can:
- Take Advanced Placement (AP) classes and exams in high school. Most U.S. colleges offer credit for qualifying scores on AP Exams.
- Take courses at a community college the summer before entering college—but be sure to find out whether the course credits will transfer.
Getting a part-time job. Your child could offset some of their college costs with a paycheck from an on-campus or off-campus job. Of course, this means juggling school and work, but many students do so successfully. Some colleges also offer work-study programs.
Learning About Financial Aid
Most families pay for college using some combination of savings, income, and financial aid. Financial aid can include grants and scholarships as well as loans. Federal work-study is also financial aid, but this is a smaller program and isn't available at all colleges.
Grants and scholarships are the best kind of financial aid because it's money your child doesn't have to pay back.
Loans must be paid back with interest, but some college loans, especially ones that come from the federal government, have very good terms. Generally, students are responsible for paying back federal college loans, but parents can take out a PLUS loan, which won't be their child's responsibility. If you choose the loan wisely, borrowing for college can be a good investment.
You and your child can also look for outside scholarships. These are certainly worth applying for—but in most cases, the majority of a student's financial aid comes from grants, scholarships, and loans from the state or federal government or from the college. That means your priority is to fill out the Free Application for Federal Student Aid (FAFSA), state and college financial aid applications, and the CSS Profile, if required.
Start learning about financial aid now—what it is, where it comes from, how to apply for it, and how much you might get.
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Getting Financial Aid