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How to Pay for College without Going Broke

Going to college is a very important decision that can basically shape a person’s life emotionally as well as financially. The benefits of a college education include; better reasoning skills, higher salaries, self-discipline and an increased value of self-worth. Most kids and young adults have thought about college and more than likely would like to go. However, a huge problem that a lot of people face is how to pay for college.

How to Pay for College without Going Broke

With the help of a good counselor (school-based or otherwise) and a financial advisor working together, you can afford to go to college even if you don’t think so. The one thing that most people need to understand is that the more complicated your income is the more you need that financial peace. In most cases, if it’s a low to mid-income family you can probably do it yourself without having to pay for professional advice. However, if you are in a higher income bracket or have questions about how your assets will affect going to college then you will want to plan a meeting with a good financial advisor.

The primary goal, regardless of your income level, is how to get your child the best education at the best price so you can also retire and not have to work until your 90 to repay loans and other debt. That’s what the bigger picture is here and there are many little things you and your child can do to accomplish these goals.

Planning ahead and Getting a Head Start

If your child is young, then you have basically all the tools needed to plan for the long term. If you are lucky enough to have money left over each month then you will definitely want to check into starting a saving plan.

Basically, there are 2 types of tax-deferred growth accounts for higher education. These are the 529 and the Education Savings Accounts (also called Coverdell or ESA’s). Both accounts are considered your assets (not your child’s) so any impact on future financial aid is greatly reduced. There are however some differences between the 2 accounts in terms of monetary contribution amount and eligibility.

The 529 Plan

This plan can be looked at as a tax-advantaged, state-sponsored method to invest significant money towards the cost of a higher education. Every state offers a 529 plan and can vary from one state to the next. Variances can include; costs, investment selection and program features. You can choose any out of state 529 plan but you should check to see if your state offers any tax incentives to keep your money in your home state.

Facts about the 529 Plan

  • Anybody can open one.
  • There are no income limits for opening or funding the account.
  • The money can be used to pay for qualified education expenses.
  • As of 2018, a single person can deposit up to $65,000 per year (couples can deposit up to $130,000) without worries of facing a gift tax. Provided the contribution is the only gift to that beneficiary within a 5 year period.
  • Lifetime contributions can total in excess of $300,000 (depending on the state) per beneficiary.

Benefits of the 529 Plan

  • Family and friends can contribute funds to the account.
  • Has higher contribution limits than other education savings accounts.
  • Gives the account owner more flexibility and control than most other college saving accounts.

Education Savings Accounts (ESA’s)

  • Only available for individuals with less than $110,000 gross income (for couples the gross income cannot exceed $220,000)
  • There is a $2,000 per year contribution limit up to the beneficiary’s 18th
  • If not used the account must be liquidated by the age of 30. However, the beneficiary can penalties and taxes by rolling the full balance over to a different ESA (Coverdell) for another family member.

These college savings plans are a great idea because it is amazing how even small contributions can add up. Understandably, they may not seem feasible if your budget is already stretched to the limit. Just keep in mind that the small contributions will add up anytime to have a chance to make a contribution.

Are You Behind in The Game?

If your child is a little older and you weren’t able to start saving when they were younger, don’t panic. There are a few key things that you and your child can do to still achieve the college dream. That’s right! Your child needs to envision the big picture of going off to college and realize that he or she can play an instrumental role in reaching this goal.

Let’s look at some ways to help pay for college that doesn’t require you to pull money out of your pocket.

Grades are Powerful & Valuable

Getting good grades in school may come easy for some students while others may struggle to get them. Regardless, getting good grades is very valuable for a college-bound student. Encourage your child to maintain or strive to improve his or her grades. Good grades are literally worth tens of thousands of dollars in scholarships.

Colleges are always looking for students with good grades and they may offer your child a full ride scholarship. It is actually unbelievable how many scholarships are available to students nationwide. Encourage your student to apply for any and all scholarships he or she may be eligible for. Even if your student doesn’t have the best of grades there are still scholarships and opportunities available. Is your student and his or her prom date a cute couple? They should be applying for the Prom Guide’s Cutest Couple Contest. Yes, it’s a real $1000 scholarship!

Work Smarter, Not Harder

We’ve all heard this saying but how can it apply to students? The answer is very simple! In most schools, a student can take what is known as dual enrollment classes. Basically, students are taking 1 class but earning 2 credits (high school and college) for their efforts. There are many classes like this and having this knowledge can knock a year or more off of your child’s college.

It’s very possible for devoted students to graduate high school and already have 20+ college hours which equates to about a year of college. You should be able to visit with the school counselor to discover what classes offer dual credits. Needless to say, this alone saves a lot of money.

Get a Grant to Help Pay for College

Unlike a loan, a grant recipient is not required to pay the money back. It is basically free money for students and there are definitely a wide range of grants available. There are too many various grants to be listed here but you can get grants based on your; hobbies, sex, ethnicity and even medical conditions just to give you an idea.

The most popular and widely used grant is the Federal Pell Grant. To get started applying for grants you should fill out the Free Application for Federal Student Aid (FAFSA) to show your financial need to all of the grant sources. This is a great start for low to mid-income families.

Student grants are also available at the state level. Contact your state’s Department of Higher Education to get a list of grants available for students in your state.

The Final Dreaded Resort

There are many student loan choices for students and parents of students. As a parent trying to figure out how to pay for college you can apply for a parent PLUS loan for undergraduate students. These loans are financed by the U.S. Department of Education and are a great option for educational expenses not covered by other financial aid.

Students have access to subsidized, unsubsidized and Perkins loans which are all federal loans. These loans are funded by the U.S. Department of Education and available for community college, four-year colleges, career, technical or trade schools.

The main differences between subsidized and unsubsidized are:

Subsidized loans generally have better terms and are only available to undergraduate students with financial need. The amount you can borrow is determined by your school. The reason most students prefer subsidized loans is because the Department of Education will pay the interest on the loan while you are in school and for the first six months after you leave school.

Unsubsidized loans are available for undergraduate and graduate students and unlike subsidized there is no need to prove financial need. The downfall to these loans is that the interest accrues from day one.

Perkins loans are only available to students that have significant financial needs. Each student’s financial need is in direct correlation with the answers they supply on the FAFSA.

Additionally, there are many private lenders that offer student loans.  This can be a viable option for undergraduate or graduate students as well as people going back to school that does not qualify for federal aid. These personal loans are available through many online lenders and services like ARCCT that has a huge nationwide network of specialized lenders.

Hopefully, this post has given you a few ideas on the best ways when it comes to how to pay for college. Please feel free to share this link if you think it might help your friends or family.

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