A recent survey from Discover Student Loans found that more than 80% of parents of 16- to 18-year-olds believe college is important to their child’s future. Yet three-quarters of those same parents worry about being able to help out financially, while an even more overwhelming majority believe their children will need to shoulder at least some of the burden.
Here are a few tips to help make solving the college financing puzzle a little easier:
Make the most of your savings. Tax-favored 529 plans, as well as the similar Coverdell Education Savings Account, help parents make the most of college savings by removing the tax burden. Unlike savings and investments held in ordinary accounts, income generated from Coverdell or 529 plan accounts is tax free. And as long as the 529 and Coverdell money is spent on eligible college expenses, the distributions are tax-free as well. That can equate to savings of hundreds — or even thousands — of dollars in taxes over the long term.
Be careful with loans. For most families, loans will probably play an important role in financing college. Unfortunately, the hardest thing about dealing with loans is getting information to understand how they work. Different kinds of loans have very different terms, yet lenders don’t always provide impartial advice on which loans are best. The best time to understand the various loans available is before your student gets a financial aid offer. Talk with high school counselors, and get independent financial advice in advance of reviewing a financial aid offer. That will allow you to be better prepared to deal with loans when the time comes.
Understand the whole package. When a college offers a financial aid package, it can be difficult to understand the combination of sources that packages includes. The Consumer Financial Protection Bureau (CFPB) has worked with the Department of Education to create a financial aid shopping sheet that fully explains tuition and other costs associated with college, as well as separating out grants, scholarships, work-study programs, and loans that are available. This allows students and parents to see exactly what each school is proposing as part of their financial aid package, and compare packages from different colleges. Keep in mind that each school will design a financial aid package that best meets the needs of their unique student populations, so you’ll need to do some research to understand the different offers.
As difficult as financing a college education is, don’t let the process intimidate you. By seeking help and understanding what’s involved before it’s time to make a decision, you can get the information you need to make sensible choices.