10 Smart Tips for Paying for College
Paying for College. Just saying that polarizing sentence alone gives many families anxiety almost instantly. I know for me and many of the families that I know, it’s something that can kept many up at night.
What we know is that college is more expensive than it has ever been. College tuition had more than double since the 1980s.
The comfort comes along when we can break things down and really see the options out there. E are not trapped to one way of doing things and there is no “cookie-cutter” way of approaching this.
Everyone’s situation will be different and everyone will have their own individual plan that is going to be based on what you decide to do.
What this post will talking about is some tips we can hone in on in our effort for paying for college. One can add these tips and ideas to their list of options.
Paying for College all starts with a Plan
A plan is defined as a detailed proposal for doing or ACHIEVING something. Another way to describe a plan is an intention or direction about what one is going to do. I’m sure you’ve heard before “A goal without a plan is just a wish” and
“By failing to prepare, you are preparing to fail.”
Potent words as they should be. Before we even get to the tips….it all starts with a plan right? A sound college financial plan will be able to give you the roadmap and then you can incorporate the tips we will be discussing into said plan.
In each of the 10 tips we will discuss, the very foundation of them is planning. Plan early, plan often, self-evaluate. A college degree may be more affordable if you devise a smart and well-thought out plan. And yes this can even be mapped out prior to your children starting high school!
10 Smart Tips for Paying for College.
Let’s us now discuss the 10 smart tips for paying for college. The first seven may be known but should be thought of as a foundation that needs to be established.
The last three (my personal favorite) are more outside-the-box and I’d like to expand more on those in particular.
Save what you can
Multiple streams if key here. Savings + Monthly Cash Flow + Financial Aid + a 529 Plan may be a good equation for paying for a college degree. If you can start saving 10-12 years before college that would put you way ahead of the game. Did you know that if you have a 9th grader, tuck $250 a month into a high-yield bank savings account that in four years you will have more than $12,500?
The site bank rate has a great and free College Savings Calculator that you can use. You can access it here: College Savings Calculator.
Below is a picture of what it looks like. You can enter in the cost inflation, current savings, monthly contributions, and rate of return. Then (and this is the tough part) you can enter in the college expenses for child one and child two. There are several calculators out there so feel free to use any of them as it will give you a good sense of what you are up against.
Engage Kids Early
This tip is challenging in my opinion. For both the parents and the child.
It’s important for them to get engaged early this way they treat the cost of college seriously. However, it’s also important for them to be children and let them do things that children do.
Nevertheless, get them involved. Let them know that money received for birthday and special events, a portion will be put towards their college. When they start working, split their paychecks and put half (or more) into the account.
Get an estimate of what your out of pocket will be
This tip is the one that will make you cringe because it will require you to roll up your sleeves and get involved number-crunching the costs of college.
Get familiar with the costs of college and more importantly the out of pocket expenses early on. Have an expectation because that then creates a goal and you’ll have that in mind moving forward.
Don’t focus on the sticker price
Now I want to reiterate again about the sticker price because if you were to go to your google machine and type in “private college vs. public college tuition” you can head over to the images and see some staggering graphs.
The average cost of a private college for four years is close to $160,000. Whereas a public college for six years is right around $120,000. So again, don’t get stuck on the sticker price. The key here is options.
Fill out all the forms
As discussed in our FAFSA post, many students/parents never complete the form.
It’s hard to assume that you will or won’t qualify for anything need-based until you complete all the forms. Once those numbers are in then you can plan even more.
It’s so amazing that families are not completing the FAFSA but why exactly is that?
Reasons for not completing the FAFSA
Here are the reasons families are not completing the FAFSA:
- Thought they could afford college without financial aid
- Thought they would be ineligible or may not qualify for aid
- Did not want to take on debt
- Did not have enough information about how to complete the FAFSA
- Did not know they had to complete the FAFSA
- Felt it was too time consuming
Stay focused on making smart decisions. Only borrow what you need and do not have your eyes get so wide that you will want to take more to pay for the non-tuition aspects for college.
Remember Kristy Epperson? She paid off $20,000 in student loans off in one year! Well part of her strategy was that student loans were just “an option.” Just because that is the norm doesn’t mean it has to be your normal. This is where people get tripped up and honestly borrow more than they have to.
Students borrow first
This one is hard but the interest rate for students is currently 4.5% as opposed to the parents plus loan which are at 7%. It’s in us as parents to not want our children to go into debt so young and I myself am torn about this but it may make more financial sense.
Again not easy but parents will be to balance between their eventual retirement and the cost of their child’s college.
Did you know that some states allow students to earn college credit for classes taken during high school?
Well you can and these classes are usually taught to a higher standard and credit is issued through a public university.
Depending on where you live, the credits earned in this manner can be transferred to state schools.
For example, if someone is taking a high school language class that qualifies for concurrent enrollment through a local University. However, the students plans to attend another College in the same state. Because of the transfer agreements among the state schools, the student’s language credits can be transferred from one university to another.
In certain states, it’s possible to complete dual enrollment credits free of charge. Other states, though, charge for credits. However, you may be able to get a discount on credits and that can amount to up to 50% off or more!
It’s quite an opportunity for those that are high school students working on your college degree.
AP and College Level Examination Program (CLEP) Tests
It’s pretty crazy but these little known way to earn college credits is not widely known.
A student should consider testing out of some of your classes. I’ve known several people who’d been able to reduce the number of classes they took in college by using my Advanced Placement (AP) test scores.
You can take AP classes are taken during high school. When you pass the test associated with the class, some schools will allow you to skip some general education courses, allowing you to get through college faster.
In addition to AP tests, you can also take advantage of the College Level Examination Program (CLEP).
More than 2,900 public colleges and universities in the United States will give students credit for what they already know if they pass the CLEP test.
The CLEP tests are very appealing because of their convenience and lower cost compared to a semester of coursework for comparable credit.
The exams are offered at testing centers and are administered on a computer in a lab setting. You even get the results after the completion of the exam.
You can then transfer that over to your school. Just make sure the college accepts that particular CLEP exam prior to taking it.
Income Share Agreements (ISA’s).
This trend has been continually going up as a unique way that families/students can pay for college.
The Income Share Agreement (ISA) is set up to where the student receives funds to pay for college. In return, the student agrees to pay a certain percentage of future income for a fixed period of time.
Unlike the traditional student loan, there’s zero interest and zero balance.
Purdue University is spear-heading this effort and is really wanting to, help students set up ISAs as a form of student aid.
However, there are also websites, such as Paytronage, that match students with investors willing to front them the money to complete a degree.
Depending on the situation, ISAs can be beneficial and what’s great is that ISAs eliminate the chance of default and that many agreements are capped at 10% or 15% of income, ensuring affordable payments.
A potential downside to the ISAs can be that students could end up paying more, especially if they start a career with a high-paying job.
For example, say you sign an ISA for eight years and 15% of your income. If you graduate and earn $50,000 a year, you’ll repay your investor $60,000.
It’s important to make sure you do the math before signing an ISA. And research your options.
Terms are going to vary for each ISA. So it’s important to be well-informed before agreeing to sign away a portion of your income for a few years.
Think of first seven tips we went through as the foundation as I said earlier. However, the last three are the ones that in my opinion will separate you from the rest of the people trying to tackle this beast of an issue.
It’s important to have plans, aims, and goals. However you want to coin them, you will want to create something to track all of this and constantly (actually obsessively) be looking at this and updating.
I hope you have enjoy these tips. I would love to hear your thoughts on this as to how you have approach this when handling and embracing paying for college.
That is all for now!