We all want the best for our kids. We want them to be successful and live financially rewarding lives so that they can raise their own families without the struggles we may have had. We want them to go to college. We expect them to go to college. Unfortunately, not all of us have the financial means to get them there, at least not without some help.
Options for Paying for College
According to The College Board's study on Variation in Published Tuition and Fees for the 2012-2013 academic year, the tuitions vary greatly when choosing between private and public institutions. For instance, if you or your child is interested in a public 4-year college, the median tuition is $8, 672 per year. Your wallet will feel a little lighter, however, with a private 4-year college at a significantly higher median price tag of $30, 200 per year.
If your children are a bit younger and you still have time to plan ahead, there are options available, such as Section 529 Plans, which allow you to save money as your child grows in an account that can be used to pay for "qualified educational expenses." The beauty of these plans is that funds that you invest in these accounts are free from federal income tax (unless, of course, your child decides not to go to college). Since these plans are state-administered investment plans, some states will also offer tax benefits, such as tax deductions and/or credits. As of April 2013, there are 86 of these 529 plans, each with its own fee structure and other unique features, so it's best to do your research or talk to your financial planner when considering one.
What if these plans aren't an option for your particular situation? What if your kids will enter college in a year or two? What now? Do you tap into your retirement fund to pay for your child's education? Most experts say NO! You should never use your retirement money to pay for your child's education. As it is, most of us will struggle to save enough for retirement, so accessing a retirement fund to pay for a child's tuition isn't generally advisable. Of course, some people are 100% funded for retirement and can afford to tap into their IRAs or 401(k) accounts. Again, it's always best to make these decisions with the guidance of a financial planner or accountant whom you trust.
Fortunately, for those of us who don't have a significant amount of savings stuffed under a mattress somewhere, there are a variety of tuition assistance programs to help ensure that our children get a proper college education. There are many sources of financial assistance, and more of us every year are looking to these programs for help. In fact, federal grant aid almost tripled between 2001 and 2012, increasing from 20% to 26% of the total $185.1 billion in undergraduate aid.
What to Look For When Choosing a College
One very important point to look at when considering colleges and universities is their financial aid policy. According to Kiplinger, Several private college with a hefty annual tuition have "no-loan financial aid policies" which allow a student attending a school with an expensive tuition to graduate with very little debt to deal with. For example, students attending Princeton University (annual tuition of $50, 269) typically graduate with debt as low as $5, 225. Surprisingly enough, the percentages of students who borrow loans for these schools is just as low. At Princeton, again, the percentage of borrowers is 23%. So, when considering a college, it never hurts to do some research into every college that you're interested in. Not just the ones with low costs. You could be surprised by what you find!
Along the same lines as researching which colleges or universities offer the best financial aid package, you must also be sure that you'll be able to pay off whatever debt you end up having within a reasonable amount of time. When thinking about majors, we automatically think "What is my dream job?" That dream, however, isn't quite realistic in this day and age. A drama major going to a school with a tuition of $30, 000 would probably leave college with more debt than they would be able comfortably start paying off with any theatre job they would get. Of course there are always the special cases where that same theatre major could become quite famous in their field and have no problem paying off debts. That situation is, unfortunately, the exception and not the rule. The best thing you can do is to research your major of choice. Find out what types of positions are available with that type of degree, the chances of landing a job quickly after graduation, and the average salary of those jobs. This could be a huge factor in deciding where you go and what you study. With the state of the job market where it is right now, the less debt you can rack up, the better off you are. According to New America Media, many college graduates are finding themselves taking any job they can possibly get just to start paying off their debts!