Let’s face it: college is expensive. According to the National Center for Education Statistics, four years at a public university clocks in at just under $69,000, while at a private school, it edges upward of $178,000 by the time graduation rolls around.
Though grants and scholarships can certainly offset these costs, not every student is eligible — and not every school provides them (or at least many of them).
Are you worried about paying for your child’s college tuition? Don’t want to break the bank doing so? Here are the options you’ll want to consider:
1. Set up a 529 plan.
If your child is still a few years out from attending college, consider setting up a 529 plan in their name. In some states, these are prepaid tuition plans, while in others, they function more like an interest-earning savings account.
Look into the 529 plans your state offers, and consider setting one up to benefit your student. Sometimes, even adding just $100 a month can equate to a hefty sum once that tuition bill rolls around.
2. Tap those savings.
You can use other forms of savings, too. Whether you’ve got a basic savings plan through your bank or a high-interest-earning one from a brokerage, these are all accounts you can tap and put toward your child’s college costs. Just remember: the more you take out, the lower that balance will go — and the less interest you stand to earn over time.
3. Use your 401(k) or IRA.
If you have any retirement plans in place, you may also be able to tap these for college-related expenses. If you have both options and you’re under 59.5 years of age, you’re better off using your IRA funds first. As long as you use them toward higher education costs, there’s no penalty for withdrawing the cash early. With a 401(k), though, you’ll get hit with a 10% fee for taking the money out before retirement age.
There are also 401(k) loans that let you borrow against your existing 401(k) balance. These typically offer up to $50K, but will come with interest — which might end up costing you more than that 10% penalty in the long run.
4. Tap your home equity
If you’re a homeowner, then you could have lots of options. Cash-out refinancing is a great one, as it allows you to refinance your home (and maybe take advantage of today’s low rates!), while also accessing some extra cash in the process. Home equity products also act similarly.
Just remember: Refinancing might extend the time it takes to pay off your mortgage. Make sure you take this into account when making your decision.
5. Apply for student loans (federal or private).
Your child can also apply for student loans, too. To apply for federal loans, they’ll need to fill out the Free Application for Federal Student Aid (FAFSA), and you’ll also need to provide some documentation as well — things like your tax returns, W-2s, bank statements, investment/asset statements, and more. Federal aid is need-based, so these are required to determine eligibility.
For private student loans, you can look to any number of lenders. Sallie Mae is a popular one, and many banks provide them, too. As your child probably doesn’t have much credit history yet (or any, for that matter), you’ll need to be a consigner on these loans. If you have a good credit score, it might help reduce the interest rates you’ll pay over the long haul.
6. Use a parent loan.
There are loans just for parents, too. Parent PLUS loans are federal loan options that you can apply for using the FAFSA — the same form your child fills out for their federal aid, too. With a PLUS loan, you can borrow as much as your child’s tuition amounts to.
At the time of publication, Parent PLUS loans charge an interest rate of 7.09%. That’s pretty high compared to student loans, so make sure it’s worth the price before moving forward. You should also think about your future financial plans. Are you looking to buy a house or investment property in the near future? Taking out a large loan would impact your debt-to-income ratio, which could make it hard to get a mortgage.
7. Encourage your child to work on campus.
At some schools, working on campus can help your child reduce their tuition expenses or even cover them entirely. Even if your student’s school doesn’t offer this type of program, they might still consider getting a job (on campus or off). Then, they’ll have funds to take on part of the financial burden, covering rent, food, supplies, and other costs.
8. Get a side gig.
If you’re really looking for a way to raise money for school, there’s always the option to take on an additional job. Driving for Uber or Lyft, Airbnb-ing out a room in your house, or running errands for Favor, TaskRabbit, or Shipt can all be great ways to earn extra cash before that first tuition bill comes.
Considering a Refinance to Cover College Costs?
If you’re thinking of refinancing your mortgage to pay for higher education expenses, then get in touch with Embrace Home Loans today. We’ll help you understand your options.