Ways to Pay for College

College can be expensive, but don’t be discouraged if you can’t save enough to cover the entire cost. For perspective, consider another major purchase — like buying a house. Most buyers can’t pay cash for their house. Instead, they make a down payment and borrow the rest. College is no different. While many parents dream of being able to save enough to pay for their child’s college, they often find that it requires a combination of savings, income, scholarships, government programs and student loans.

CONSIDER FINANCIAL AID: It comes in the form of grants, scholarships, low-interest loans and work-study programs. Even if you do not think you will qualify, complete and submit the appropriate forms. Some colleges grant available aid on a first-come, first-served basis. For many people, funding college may come down to persistence in searching for opportunities.

COMPARE COLLEGE SAVINGS OPTIONS: Several popular college savings options have been created to help you save for education.

• Uniform Transfers to Minors Act or Uniform Gifts to Minors Act accounts (UTMA/UGMA accounts). These are custodial accounts allowing individuals to contribute an irrevocable gift to a minor child. Accounts are established in the child’s name, and earnings up to a certain amount each year could receive more favorable tax treatment.
• 529 College Savings Plans. These tax-advantaged investment accounts are designed to help save for education expenses. They can be established to benefit someone specifically — like a custodial account — or can be established with the flexibility to help others in your family. Click here to learn more.
• Prepaid tuition plans. These allow you to lock in current tuition rates. Participants purchase units of tuition — years, semesters or credits — at current costs for state college and use them to pay for future college costs.
• Coverdell Education Savings Accounts (ESA). Annual contributions up to $2,000 per beneficiary can be made as long as the contributor’s income does not exceed certain thresholds. Earnings can be federal income tax-free when used for qualified education expenses.
• Ask your tax professional about federal income tax incentives designed to help you offset higher education expenses. For more information on education savings, see IRS Publication 970, Tax Benefits for Education, available at irs.gov.

Opportunities: Post-9/11 GI Bill

The Post-9/11 GI Bill provides up to 36 months of education benefits for approved programs. Some service members may also transfer unused GI Bill benefits to their dependents, including military spouses. Other benefits may include:

• Monthly housing allowance
• Annual books and supplies stipend
• One-time rural benefit payment

For details, visit gibill.va.gov or call (888) 442-4551.

USE TUITION ASSISTANCE: If your service member is pursuing education, they should take advantage of tuition assistance programs offered by the military while they serve. This strategy may leave more Post-9/11 GI Bill benefits for you or your children to use.

Funding College: About Student Loans

FEDERAL STUDENT LOANS: Federal student loans should typically be used before private student loans. Federal loans charge lower, fixed interest rates. They can sometimes be subsidized while you’re in school, which means the government will pay the interest. Repayment doesn’t start until you graduate, leave school or change your enrollment status to less than half time. Finally, repayment terms for federal student loans are more flexible than private loans, and they can even be partially for fully forgiven in some circumstances.

TYPES OF DIRECT FEDERAL LOANS: 

• Subsidized loans — Available to students who demonstrate financial need. The government will pay the interest while you’re in school.
• Unsubsidized loans — Don’t require you to demonstrate need.
• PLUS Loans — Available to graduate or professional students and parents of dependent undergrads.
• Consolidation loans — Let you combine all your eligible federal loans into one easier-to-manage loan.
• Perkins loan — For undergraduate and graduate students who have exceptional financial needs. Here, the school acts as the lender.

PRIVATE STUDENT LOANS: Offered by non-government institutions — like banks, credit unions and colleges. They’re usually more expensive and less flexible when it comes to repayment, so they should be your last resort.

Top Tips for Student Loans

Here are a few best practices to help you navigate the world of student loans:

• Avoid them. The best strategy to paying back a student loan is not needing one in the first place. Explore scholarships, grants, working part time, military programs (MYCAA), or employer tuition reimbursement programs to help pay for school.
• Minimize them. Once you have exhausted all efforts to avoid student loans, try to minimize the amount you borrow. To save money, consider attending community college before transferring to a public or private institution. Or, consider attending a less-expensive college.
• Learn your options. Visit studentaid.ed.gov for more information about paying for college.

• Choose federal over private. Start with federal loans if you need to borrow for college. Federal loans typically offer lower interest rates and more flexible repayment options than private loans. Federal loans also can be tax deductible and have the potential to be subsidized or even forgiven under certain conditions.
• Complete the FAFSA. All students interested in financial aid should complete the Free Application for Federal Student Aid (FAFSA) annually. Visit fafsa.ed.gov for deadlines.
• Understand repayment options. Federal student loans offer a number of repayment options, including many that are income-based. Private loans also offer some choices for how to pay back your debt, but they are more limited than federal loans. Be sure to work with your lender or loan servicer to determine the repayment options that work best for you.
• Consolidate carefully. Avoid for-profit companies promising to consolidate your loans for a fee. You can often do this yourself.
• Communicate with your lender. If you run into trouble making student loan payments because of unemployment, health problems, or other financial challenges, it’s important to communicate these problems with your lender. Though they should be used carefully, there are legitimate ways to postpone your federal loan payments, such as deferments and forbearance.
• The Public Service Loan Forgiveness (PSLF) program. This program forgives the remaining balance on your Direct Loans after you have made 120 qualifying payments under a qualifying repayment plan while working full-time for a qualifying employer. To learn more about this great benefit and how it can potentially help you, visit the Federal Student Aid website at studentaid.ed.gov and search for PSLF.
• 0% student loan interest relief. Service members are exempt from paying interest on certain student loans for up to 60 months while serving in an area qualifying for hostile fire or imminent danger pay. Certain exceptions may apply. For more information, visit studentaid.ed.gov and search for the publication, “For Members of the U.S. Armed Forces."