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    A Parent’s Guide: How To Pay For College

    Judy Miller - 2020-08-09T21:00:00.000Z
    How To Pay For College

    Among a parent's proudest moments is seeing their child in a cap and gown when collecting a college diploma. However, handling the expense of a university education can be stressful given the continually rising costs. Fortunately, there are several ways to manage paying for a university degree affordably.

    Using Savings

    As a parent considering how to afford a child’s higher education, the best strategy is always to start planning early. Ideally, you will be putting money aside to pay your child’s higher education costs while they are still young. Moreover, several states grant special opportunities to save money for your child’s future education like Section 529 Education Savings plans. 

    You can even choose to save money for your child’s future degree with the help of the Coverdell Education Savings account, which enables you to add funds until your child turns 18. 

    Pros

    • A few states offer a tax deduction
    • You are able to front-load your input

    Cons

    • Some of the plans appear with high interest

    Utilizing Prepaid Tuition

    The prepaid tuition program is among the best initiatives taken by universities and colleges. Though most educational institutions are yet to join this solution, sooner or later, approval is expected from every state. 

    With this type of plan, you can prepay college tuition fees now before your child attends class in the future. There is no doubt that tuition and college fees are increasing rapidly, and accordingly, this plan helps you lock in present rates and improves overall affordability.



    Pros

    • You can limit college fees to an extent
    • There are no rules or boundaries in this savings method

    Cons

    • Limited option for your child’s future educational choices

    Paying With Scholarships

    Another suitable way of financing your child's future education is through scholarships. First of all, you need to fill up the FAFSA form. Afterward, the government program will assess your financial circumstances and your child's merit to estimate the amount of support you need. 

    Scholarships are mainly awarded on the basis of extracurricular activities like sports, academic success, and other relevant criteria. However, these monetary awards do not need to be repaid, making them the best way of covering college costs. 



    Pros

    • Decrease private loan requirements
    • No need to repay the awards

    Cons

    • The amount is limited and may not cover full college costs

    Exploring Federal Student Loans

    Federal student loans can be a good alternative to pay for your child’s education. While the application needs to be submitted by the student, you may need to complete the rest of the procedure for loan approval by pledging collateral to ensure loan repayment. 

    When you involve yourself in a federal loan it is converted to a Parent Plus Loan, thus making it your responsibility to pay it back within the allotted time frame. The most advantageous part about this loan type is that unlike private loans, it does not ask for any credit history. 

    Pros

    • Affordable interest rates and available tuition grants to defray college fees
    • Flexible repayment procedures

    Cons

    • The government can garnish wages or withhold Social Security and tax benefits in case of non-payment

    Using Home Equity

    The home equity loan generally refers to borrowing against the equity built up in a property. To estimate the amount of the cash you can get through the home equity loan, you need to subtract the total amount of the loan from the original value of the house. The lifespan of the loan is around 5 to 15 years and the interest rate is determined by the loan duration.

    Fortunately, lower rates are attainable because the debt is secured by collateral. However, the home can be seized in the event of nonpayment, making timely repayment extremely important.  

    Pros

    • Sometimes it is tax-deductible
    • Interest rate is considerably lower than the alternatives

    Cons

    • There is always a chance of losing your house if you do not repay on time

    Cosigning For A Private Student Loan

    Finally, a private student loan can also help you manage the costs of your child’s college degree program.  You can approach a lender and co-sign the loan to ensure approval.

    When applying for the loan, you will need to provide documentation, approve a hard credit inquiry, and fill out the application forms. Lenders are free to decide eligibility criteria, interest rates, and payment methods at their discretion. However, unlike federal loans, you can access a larger loan amount with private loans. Interest rates may be higher or lower than comparable government loans depending on the borrower’s and co signer's credit scores, but lose on certain government loan protections. 

    Pros

    • The loan comes with higher limits
    • It delivers supplemental backing

    Cons

    • You might not find an income-driven repayment option or forgiveness on this loan

    Bottom Line

    The primary duty of the parents is to teach their children about financial responsibility. Do not just pick a loan for the sake of it. Carefully conduct your research and choose the most feasible financial option to handle their degree expenses affordably.