Best Ways to Pay for College: Parent and Student Guide

Is college in your future? Whether you’re a parent who wants to secure your child’s educational future or a student looking for ways to pay for college without student loans, you have several financing options. The key is to get started today!

Parents preparing for the long-term

If your child has a college planning horizon of ten years or more, yours is a two-step process. First, set clear goals for your child’s college fund. How long will you be able to contribute to this fund? What are the estimated future costs you’d like to cover? These could include not only tuition, but fees, housing, books and other college expenses. Use our college savings calculator to estimate how much you should be saving.

If these questions feel difficult to answer, talk to your financial professional. They can help you understand your educational goals and your saving horizon so you can make the best choice for your child’s future.

Most families would like to avoid the crippling college debt that can come from taking out high-interest rate student loans. Fortunately, there are many ways to pay for college without taking out loans. They include:

• Open a 529 college savings plan. This savings tool is a state-sponsored investment plan that allows you to save money for a beneficiary to pay for their education expenses. 529 plans offer tax advantages and potential investment growth, and each state’s plan is slightly different. 529 plans are investments which are subject to the risk of loss, including principal. Talk with your financial professional to see if one is right for your situation. For more information on 529 plans refer to the SEC’s Investor Publication.
• Use life insurance to help pay for college. With a cash value life insurance policy, you can secure needed death benefit protection for yourself while also providing a future college funding source for your child. Withdrawals¹ and loans from the cash value of your policy can occur as needed. Better still, the value of your life insurance policy isn’t counted as an asset in financial aid formulas, so it won’t affect the aid your child will receive.
• Open traditional savings accounts. Although 529 plans and life insurance offer advantages for long-term saving, there are other ways to pay for college too. For maximum accessibility and flexibility, you can set up a savings account, put money away in a certificate of deposit (CD) or open a money market account. Pro Tip: Automate your college contributions so you don’t have to think about it every month. Even a small monthly contribution can add up over time!
• Dedicate gift money to a college fund. Consider opening a dedicated college gift account for your child, so that family and close friends have this as an option instead of traditional gifts for birthdays and holidays. The knowledge that their gift will help your child’s educational dreams come true is a priceless perk of this method for your friends and family.
• Encourage your student to explore a diverse range of experiences. Once your child reaches school age, encourage them to explore different activities, hobbies and interests—especially if a particular activity sparks a true passion in them. Colleges seek well-rounded students and will often favor those who have a more diverse, varied background when they’re making decisions about non-academic based scholarships or grants.

Students preparing for a near-term college education

What if college is just around the corner? You still have great options to consider paying for college without loans.

• Do your research on scholarships and grants. If appropriate, ask your college guidance counselor for scholarship and grant opportunities—or do your own research online or via community organizations. There are a wealth of sites and search engines dedicated to promoting local, regional, national and in some cases international aid sources. These scholarships and grants could be based on need, academic achievements, hobbies or even your geographic location. Don’t assume you won’t qualify—a significant amount of money is available for those willing to do the research work.
• Apply for financial aid. As early as possible during the year you’re applying to college, complete the Free Application for Federal Student Aid (FAFSA). This document helps determine your eligibility for federal grants, work-study programs and low-interest loans. Parents can submit this document any time after October 1 of a child’s senior year in high school, but it does require tax information, so most parents submit it in early January.
• Check into education tax credits. Special education tax credit programs, such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC), can provide tax benefits for qualified education expenses. Definitely don’t skip this step!
• Discover what work-study programs are available. Now more than ever, work-study programs are a staple of the college payment process. These part-time job opportunities not only provide money to help you cover educational expenses, but they can also offer legitimate and valuable work experience toward your future career—a win-win for any student. You can contact the financial aid offices of the colleges you’re considering to learn more about their work-study programs.
• Consider a two-year or community college that offers transferrable credits. If you’re not sure what college major you want to choose or how specifically you plan to use your degree after college—or if you simply want to attend college for less—consider starting your education at a two-year, community or online college. Many of these accredited institutions have agreements in place with major four-year schools, which will allow you to fully transfer your credits for core courses all students must take to graduate. This strategy can dramatically reduce the overall cost of your education, while allowing you to secure your final degree from the college of your dreams.

Paying for college can be challenging—but there are many resources that can help. There are steps both parents and future college students can take to prepare and help keep costs down. By talking with counselors at your child’s school and prospective college, working with your financial professional to set up a plan that fits your needs and contributing to savings programs that make sense for your budget, you can give your child (or yourself!) the gift of a college education.

Sources and References:
¹ Tax law permits a policy owner to withdraw life insurance policy cash values up to the policy owner’s basis or investment in the contract without income tax consequences. Withdrawals and loans will reduce the available death benefit. Withdrawals beyond basis may be taxable income. Excess and unpaid loans will reduce policy value and may cause the policy to lapse. If a policy lapses, unpaid loans are treated as distributions for tax purposes.