Last month’s college decision day delivered excitement, pride, and probably a little relief for many families. After years of planning, applications, and campus visits, your child has officially chosen their next chapter. Now comes the next big question: how do you pay for it?
With college costs continuing to rise, many parents are balancing tuition expenses while also trying to stay on track for retirement. The good news is that there are several tools and strategies available to help families fund education without completely sacrificing their long-term financial goals.
Start With Financial Aid
One of the biggest misconceptions about college financial aid is that it’s based solely on parent income. In reality, aid eligibility is determined by a formula called the Student Aid Index (SAI), which considers both the parents' and the student's income and assets. That’s why every family should complete the FAFSA (Free Application for Federal Student Aid), even if you believe your income may be too high to qualify. Schools use FAFSA information to determine eligibility for:
- Scholarships
- Grants
- Work-study programs
- Federal student loans
- Potential Pell Grants
Once submitted, families can use their FSA ID to review their FAFSA Submission Summary and see their calculated SAI.
Understanding 529 Plans
When it comes to saving for college, 529 plans are among the most popular options. Named after Section 529 of the IRS tax code, these accounts allow families to save and invest for education expenses with potential tax advantages. Funds grow tax-deferred, and qualified withdrawals are generally tax-free. There are two main types of 529 plans:
Prepaid Tuition Plans
These plans allow families to lock in future tuition costs at today’s rates. Although appealing, they may come with residency requirements and limitations on where the funds can be used.
State College Savings Plans
Every state has a version of this plan that allows families to invest money for future educational expenses. Some states may even offer additional state tax benefits for contributions.
Recent legislation has also expanded 529 usage to include:
- K-12 private school tuition
- Qualified apprenticeship programs
- Up to $10,000 toward student loan repayment
Other College Funding Options
In addition to 529s, families may consider:
Scholarships and Grants
These opportunities aren’t just for top academic achievers. Students may qualify based on academics, extracurricular activities, athletics, community involvement, or financial need.
Coverdell Education Savings Accounts
Coverdell accounts allow eligible individuals to contribute up to $2,000 per child annually toward educational expenses.
IRA Withdrawals
Penalty-free IRA withdrawals can sometimes be used for qualified education expenses, though doing so may impact long-term retirement savings.
Tips to Potentially Improve Financial Aid Eligibility
There are also strategies families may use to potentially maximize aid opportunities:
- Keep college savings accounts in the parents’ name rather than the student’s.
- Reduce outstanding debt before filing FAFSA forms.
- Maximize contributions to retirement accounts like 401(k)s and IRAs, which generally are not counted toward SAI calculations.
Don’t Forget About Retirement
While helping your child pay for college is important, it’s equally important not to jeopardize your own financial future in the process. There are loans available for education, but none for retirement. The best college funding strategy balances both goals thoughtfully.
If you’re navigating college savings, FAFSA forms, financial aid packages, or retirement planning, we're here to help you create a plan that works for your family.