A Guide to How to Pay for Your Kid’s College

Planning for college is an exciting milestone for both students and their families—from choosing the right school, to deciding on a major. But while this journey is filled with anticipation, it’s also common for parents to feel overwhelmed by one major concern: the cost.

So, how can families afford college without breaking the bank? There are plenty of options available to help parents and students approach paying for college in a way that is financially smart–and sustainable. Let’s explore how factors like college selection, financial aid eligibility, and personal savings strategies can play a role in reducing your student’s out-of-pocket educational expenses. 

Key Takeaways

• Saving money early through savings accounts, CDs, or 529 Savings Plans can help pay for your child’s education.
• Support your child in completing the Free Application for Federal Student Aid (FAFSA) to determine if they’re eligible for need-based scholarships and grants to help pay for college. 
• Picking an affordable school can help reduce college costs, but you’ll need to balance your child’s educational priorities with your budget.
• Federal and private student loans can shore up any gaps in college funding, but it’s important to understand rates, terms, and repayment options. Each one has different benefits.

Start Saving Early

Saving for college early is one of the biggest ways to help pay for your kids’ college education. Starting the right kind of savings or investment account for your kids can make a big difference when considering how to pay for college.

Compound interest is a powerful tool, and the more money you can invest earlier in your child’s life, the more those funds will grow over time. High-yield savings accounts and certificates of deposit (CDs) are excellent long- and short-term tools for growing your money, but they’re not the only ones. One of the most popular options for college savings, the 529 Savings Plan, makes investing in your children’s college education simple.

How to Open a 529 Savings Plan

A 529 Savings Plan is a tax-advantaged investment account designed to help families save for future education expenses. Each state sponsors a plan, and the money you contribute grows tax-deferred. Withdrawals from a 529 plan are tax-free if used for qualified expenses, including:

• Tuition
• Fees
• Books
• Approved room and board costs

You can start a 529 Savings Plan by following this process:

1. Compare plans: While many people choose their home state’s plan, you’re not required to stick with it. Shop around for low fees and strong investment options.
2. Open an account: Visit the plan’s official website or use your financial advisor to open the account online.
3. Name a beneficiary: This is typically your child, but you can change it later if needed.
4. Set up contributions: You can make one-time deposits or schedule automatic transfers to grow the savings steadily over time. Sharing account information with family members simplifies the process of letting them contribute, too.

Remember, even small contributions can add up. The earlier you begin saving, the more time your money has to grow.

Don’t Skip the FAFSA

While a 529 savings plan can set the stage for parents paying for college, it’s important to tap into every available financial aid source, starting with the FAFSA.

The FAFSA isn’t just a resource for low-income families. It’s the gateway to federal grants, work-study programs, student loans, and many state and institutional scholarships. Submitting it early can increase your student’s chances of receiving the maximum financial aid and avoid overpaying for college. The application typically opens in October each year, so mark your calendars.

While the FAFSA isn’t a complicated form, it does require a lot of information. There are tons of resources available on studentaid.gov to guide you and your child through the application process. In addition, many schools offer support through their financial aid offices or virtual workshops.

Pursue Scholarships and Grants First

Speaking of financial aid, scholarships are a great resource to help parents pay for college. Free money in the form of scholarships and grants doesn’t have to be paid back and can significantly reduce your student’s college expenses each year. Help your student seek out and apply for as many scholarships and grants as possible. 

To improve their chances of qualifying for scholarships, encourage your student to build a robust resume with strong academic performance or extracurricular activities. Colleges often award money to high achievers to attract top talent, but they aren’t the only providers of scholarships. Various civic and fraternal organizations, professional associations, and affinity groups award money, too. Use a scholarship search tool to see what’s out there for your student.

Grants and scholarships are one of many different ways to pay for college. Leveraging them to lower your overall costs can help reduce reliance on other forms of aid that do need to be repaid.

Learn About Student Loans

If free financial aid and savings still leave a gap, parents paying for college often turn to student loans to help cover the remaining costs. Not all loans are created equal, though. Understanding your options is important to help avoid long-term financial strain. Some of the most common student loan types include:

• Federal Direct Subsidized and Unsubsidized Loans: Taken out by the student, these loans tend to offer the lowest interest rates and flexible repayment options. Subsidized student loans offer the advantage of not accruing interest while the student is in school.
• Parent PLUS Loans: Another type of federal loan, Parent PLUS loans are student loans for parents (biological and adoptive) of dependent undergraduate students. These loans typically have higher interest rates than student loans and require a credit check.
• Private Student Loans: If federal loans aren’t an option, lenders like Ascent offer a wide range of private loans with (or without) a creditworthy cosigner, typically a parent. Some lenders also offer parent student loans designed specifically for parents or guardians looking to take out a loan on their student’s behalf. When researching private lenders and loan types, don’t forget to consider other loan benefits, like ACH payment discounts and access to coaching and internships. 

Before signing the dotted line for any student loan, it is important to compare loan terms, interest rates, and repayment options. Resources like loan calculators and financial aid counselors can help parents understand the long-term impact of each borrowing decision.

Encourage the Right School Choice

Where your student goes to school—and what they plan to study—is just as important as how you pay for it. Consider using a student loan or degree ROI calculator to help your student understand the impact of what they’re borrowing and how their career goals intersect. 

Ascent’s Bright Futures Engine is an excellent tool to help you and your student anticipate how their planned major, chosen school, and financial aid can impact the expected ROI of their degree.

If your student wants to attend a certain school and major in elementary education, they can input the school and major to see their:

• Estimated yearly costs for that school
• Expected average first-year salary
• Bright Futures Engine index, which is a number that translates to the anticipated ROI of attending that school for said major. The higher the score, the higher the expected return on investment.

The Bright Futures Engine doesn’t take into account financial aid amounts on its own, but you can input your expected financial aid to help increase the Bright Futures Engine index. Input multiple schools and majors to help you determine which options are worth your investment.

Ultimately, the school choice depends on what kind of experience your child wants. Each institution has academic and social pros and cons, and you’ll have to weigh them against the financial considerations to make the right choice.

Learn More with Ascent

Learning how to pay for your kid’s college looks different for each family. The goal isn’t to cover every cost (although that may be possible). Instead, it’s to help your child graduate with as little debt as possible while keeping your finances healthy.

That’s why Ascent offers resources for parents and families to help budget, plan for college, and even borrow money for school through cosigned student loans. Explore our full lineup of student resources and learn how Ascent can help, no matter your student’s path.

FAQs

How do most parents pay for kids’ college?

Most parents pay for college using a combination of savings plans, income, financial aid, and student loans. Scholarships and grants are another popular way to fund education, as are gifts from friends and family. Early planning reduces the need for borrowing and can make costs more manageable over time.

Is paying for a child’s college tax-deductible?

Tuition payments aren’t generally tax-deductible, but there are some tax credits available. A 529 Savings Plan is a tax-advantaged way to help pay for college, and the student loan interest deduction can help eligible borrowers reduce their tax burden after college.

When should we start filling out FAFSA?

You should submit the FAFSA as soon as it opens, usually on October 1 each year. Applying early increases your chances of receiving more financial aid, especially for need-based and first-come, first-served programs.

What expenses should we expect beyond my child’s tuition cost?

Tuition is the lion’s share of what students have to pay for, but it’s not the only expense. Expect to budget for room and board, books and supplies, transportation, activity fees, and other personal expenses. These can add thousands to the total cost of attending school, so factor them in when planning for your child’s education.