A few years ago, a cartoon circulated in the newspapers: It portrayed a college-bound student, sweating over a college entrance exam. This exam had only two questions: 1) Your college education will cost $75,000; 2) How will you pay for it?
Sadly, the situation hasn’t improved over time. Since at least 1980, college tuition has been handily outpacing core inflation, increasing by some 180% over the last 20 years. In times past, a student could realistically make enough to cover most costs with a combination of work-study programs, scholarships, and perhaps a little help from parents. But today, the average holder of a freshly minted bachelor’s degree is also saddled with between $27,000 and $34,000 in student debt, depending on whether they attended an in-state public university or a private school.
Clearly, parents who want to help their children avoid entering adult life with the burden of student debt need a well-designed plan in place, and, especially for young families, a comprehensive financial plan should include a strategy for education funding. But, as we all know, caring for children from birth through high school graduation is expensive. On the average, today’s parents will spend almost $319,000 to raise a child born in 2025 from birth to age 17. It’s not surprising, then, that for many parents (and even grandparents) the dream of giving a child the gift of a debt-free higher education gets sidetracked by handling the daily necessities of diapers, formula, school lunches, braces, youth sports, transportation, prom gowns, and all the rest.
As with most important financial endeavors, however, the key to success in funding higher education expenses is having a plan in place as early as possible. And such planning is all too rare, according to a recent survey by financial self-help site NerdWallet.com: about 1 in 5 families (20%) say they want to save for the kids’ college costs, but they haven’t done anything about it.
Here are some ideas that can help parents and other concerned family members get started early on funding higher education expenses.
- 529 plans. These tax-advantaged plans are offered by most states. Funds deposited grow tax-free until they are needed for qualified educational expenses, which now include tuition for private kindergarten, elementary, and secondary schools in addition to college. Plans vary from state to state, including the investments available. Most plans allow changes to the beneficiary, however; if a child decides not to attend college, the funds can be re-allocated to a younger sibling or even a parent seeking further education.
- Roth IRAs. Though typically targeted for retirement, funds in Roth IRAs can, in some circumstances, be utilized for qualified educational expenses. However, contributions are limited to the earned income of the account beneficiary, so unless the child has actual earnings to contribute, it is often a parent or grandparent’s Roth IRA that will be the source of the funds. Though most retirement account withdrawals are subject to penalties for withdrawals before age 59 ½, an exception exists for Roth accounts that are at least five years old at the time of withdrawal when the funds are being used for qualified educational expenses.
- Regular savings over time. Even if you don’t open a 529 or Roth account, you can still make a big dent in a child’s college costs if you start early and maintain a disciplined schedule of deposits to an account. The key is giving yourself the maximum amount of time for the funds to compound and grow. Some parents also cultivate the habit of allocating “bonus” income to the education account: tax refunds, a portion of salary increases, birthday gifts, and the like. Also, as childcare costs decrease (for example, when the child “graduates” from paid preschool to public school kindergarten), many parents will continue “paying tuition,” except that now it goes into an education savings account. Any way you can cultivate the habit of systematic savings—amplified by the occasional “windfall”—will put you ahead when the day comes to start paying college tuition and fees.
Last-Minute Shortfall? Don’t Panic
But let’s say that, despite your best efforts, you’ve just gotten the estimate for your student’s tuition and fees for the semester, and you’re coming up short. Take heart; all is not lost. You still have some alternatives.
- Ask for a payment plan. If your student still has a balance due, even after the application of available savings, financial aid, and grants, you may be able to arrange a no-interest payment plan to liquidate the balance over several months instead of having to pay it all at once. Such plans are fairly common and can provide a more palatable alternative than either using a credit card (and typically paying high interest) or taking out some other type of loan.
- Ask about scholarship cancellations. Believe it or not, sometimes students who already have an aid package in place change their minds at the eleventh hour. Also, colleges sometimes receive unanticipated donations to boost the scholarship coffers. Either way, the financial aid office can suddenly find itself with additional funds. By contacting the financial aid office and asking about scholarship cancellations, you can sometimes capture a portion of the additional money your student needs to cover a remaining balance.
- Appeal for additional aid. Has your family’s financial situation changed materially since you filed the Free Application for Student Aid (FAFSA)? If so, you may want to contact the financial aid office at your student’s college and make an appeal for additional aid. Many financial aid offices have a “special circumstances form” that you can request in order to file and substantiate your last-minute request for additional aid.
- Look for last-minute scholarships. There are programs available with much later deadlines than you might expect. Sites like the College Board’s BigFuture search can help you locate legitimate scholarship opportunities and also avoid scams that promise to find scholarship money after payment of a fee.
- Check out college work-study or other part-time employment. Most campuses have employment opportunities for enrolled students and are willing to work around your child’s class schedule. And there may be other opportunities off-campus. If your student works even 8–12 hours per week, they can contribute significantly to their own expenses. Be careful, though: studies have shown that kids who work 20 or more hours per week make lower grades, on average, and are at higher risk of dropping out.
These are just a few quick ideas, and a call to the financial aid office at your child’s college may turn up additional solutions to your short-term college funding problem.
At The Planning Center, we know that for many parents and grandparents, giving the next generation a “leg up” by funding higher education is a major priority. We’re here to help. And to learn more, check out our webinar, “4 Strategies for a Smarter College Search,” where we discuss developing college admissions trends, changes in the FAFSA, and much more.
