College is expensive. How can you afford it?
You can’t pull money out of thin air or rob a bank.
As an adult, it’s nearly impossible to save money for school – but you have other options.
When it comes to kids, saving for college isn’t easy but it is very possible if you do the proper planning and budgeting early.
These options are as close as you can get to pulling money out of the sky.
Funding and College Savings Plans: What are Your Options?
Not all college savings plans are created equal. In fact, some can be a rip off.
It’s important to understand your financial situation and education goals before deciding which college savings plan is right for you.
Free Application for Federal Student Aid (FAFSA)
Before you look anywhere else, check FAFSA.
If you live paycheck-to-paycheck or are worried that investing in college savings plans is just not an option financially, you might be eligible for federal education funds. The level you receive is based on your personal and family financial history and college experience.
FAFSA has many benefits and the downsides are easy to manage.
- The money is tax-free and you don’t need to pay it back.
- The application is thorough but moves quickly and doesn’t require you to submit documents.
- You can use the money at just about any accredited school.
- You need to reapply every year.
- If you’ve used FAFSA before and withdrew from your program, you may need to pay for an initial semester if you want to receive FAFSA again.
- When you apply for FAFSA, you may also have the opportunity to receive federal student loans. (These you will have to pay back.)
Since FAFSA is essentially “free money” with no strings attached, check here before looking into a 529 plan or other college savings plans.
529 College Savings Plan
Not every 529 plan is the same. Deciding which one is best for you depends on your financial situation. Brokers often charge outrageous commission rates so beware.
- Prepaid Tuition 529 Plan: This allows you to pay for tuition at a two or four-year college or university upfront at the current rate. By the time the student is ready for school, their education is already paid for.
- 529 College Savings Plan: Earnings placed in a 529 plan are tax-deferred as they grow. Later, you can make tax-free withdrawals for qualified education expenses.
Every state offers different 529 plans – check with your home state first. If you find a good rate in your state, you may qualify for a yearly state tax deduction due to your investment.
You may, however, find a great rate in another state and that’s okay too. Check with an advisor to work out all the details.
Coverdells and Custodial Accounts
You might know Coverdell Education Savings Accounts (ESAs) as their previous name: Education IRAs.
You can use these options for investing money for a variety of educational purposes including private elementary and high school in addition to college.
ESAs provide a variety of flexible investment options. Although contributions aren’t tax deductible, you can make tax-free withdrawals for tuition and other expenses.
The yearly contribution limit is $2,000 for an ESA if your income is under $95,000 per year.
Educational savings bonds are a great way to save tax-free money for college tuition and other qualified education expenses.
However, there are a few financial limits. Couples filing jointly must make under $116,300 per year while single filers need to stay under $77,550. (These numbers apply to the 2017 tax year so future investors should use this as a general idea.)
Although the concept seems simple, college savings bonds are anything but uncomplicated. When in doubt, talk to an advisor.
When people think of scholarships, they often imagine high school students playing sports or exceeding in other activities. The truth is, there are thousands of scholarships out there for all kinds of people – just like you.
If you have a specific degree or certification picked out, look for professional organizations in that field. The American Welding Society, for example, provides dozens of scholarships each year for students of all ages. Industrial gas distributor, Praxair, also provides scholarships to welding students.
Just about every industry has companies and organizations that give out substantial scholarships – many of them go unclaimed due to lack of applicants. One or two could pay for your entire tuition each year.
Putting it into Action
The hardest part about saving for college is taking the first step.
If you’re uncertain, look for a qualified financial advisor to help guide you through the process. Seek out second opinions: your money is important and you want to make sure it’s invested in the best way possible.