Tips and Tricks for Paying for College

By Dawn Handschuh, Personal Finance Writer Archive

Finding a way to pay for college isn't easy. Four years of tuition, room and board in a private four-year school now tops $129,000.1 Many parents and students cobble together a patchwork of funding that includes:

  • Grants and scholarships
  • Federal student loans
  • Personal savings
  • Private college loans

Grants and scholarships

These are as good as it gets because you don't have to repay grant or scholarship monies. Grants sometimes come with restrictions (e.g., one requiring a specific field of study, like nursing). Grant money is limited and need-based, so apply early.

Tip: Apply for Federal Pell grants, Federal Supplemental Education Opportunity Grants and state grants.

Best-case scenario: If your child's smart enough to attend certain Ivy League schools, don't let a modest income keep them from applying. At Harvard, students whose families make under $60,000 a year pay nothing. Yale and Harvard allow families making up to $200,000 and $180,000, respectively, to pay, on average, just 10% of their income.2

Federal loans

Tip: Apply for federal student loans such as Stafford, Perkins and PLUS loans, which offer low fixed rates and flexible repayment plans.

Personal savings

Most families are expected to contribute something. Ease the pain of tuition by saving early. Even small, regular investments can become a sizeable nest egg by the time your child enrolls.

Tip: Section 529 college savings plans are family-friendly plans with tax benefits, high contribution limits and no income cutoff.

With Coverdell education savings accounts, parents, grandparents or godparents can contribute $2,000 each year, with your child named as beneficiary. Withdrawals for school expenses are tax-free.

Tip: Many students contribute by working part-time during school and/or full-time during the summer.

Private student loans

Only consider student loans from private sources after you've exhausted other sources of possible aid.

Unlike federal/state aid, private college loan rates are partly determined by your credit score.

Tip: If your child hasn't established a credit history, he/she can still apply for private student loans with you or a grandparent as co-signer.

College financing is a challenge, but like many things in life, advance planning can get you on your way.

Footnotes

1 "Federal Student Aid to Undergraduates Shows Slow Growth, While Published Tuition Prices Continue to Rise," The College Board, www.collegeboard.com

2 "Affording Ivy," The Economist, January 17, 2008.