American families use a wide variety of methods to pay for their children's college tuition. According to SallieMae's 2017 “How America Pays for College” survey, 23 percent of college costs are covered by parent income and savings. Nineteen percent of costs are covered by student borrowing and 35 percent are covered by scholarship and grants. Across the United States, the average amount a family paid for college in 2017 was $23,757.
While savings and scholarships are obviously the ideal way to pay for college, they're not always a realistic option for every student or family. If your child is headed off to college in the near future, here are five options for helping them pay their way.
1. Help them hunt for scholarships
Scholarships and grants don't cost parents or students a dime. Your child's school guidance counselor should be able to provide your child with info about national, state, and regional scholarships and grants (academic or non-academic) that your child may qualify for. ( The U.S. Department of Education's Federal Student Aid website can also help you jumpstart your search.)
2. Take out a Parent Direct PLUS Loan
A Parent Direct PLUS Loan is a low-interest loan issued by the U.S. Department of Education that can be taken out by parents of dependent undergraduate or graduate students to pay for the full cost of their child's tuition, minus any grants, scholarships or financial aid received. If your credit is in good shape, you can fill out and submit the FAFSA (Free Application for Federal Student Aid) to determine your eligibility, and consult your child's college's financial aid department for info about requesting a PLUS Loan.
3. Cosign on private loans in their name
If you'd prefer not to take out loans in your own name, you can assist your child with finding the best financing available by agreeing to cosign on privately funded student loans. Again, as with the Parent Direct PLUS loan, your credit history may be a factor. It's important to be aware that cosigning on any student loan may have an effect on your personal credit. Cosigning may also make you responsible in the event your child defaults on their loan.
4. Borrow from your savings
If you still have several years to go before your child starts packing for college, consider setting up a 529 College Savings Plan in their name, and dedicate as much of your expendable income as you can over the next several years. 529 Plans (when used for college or other postsecondary education plans), are tax-free. (You can find more information about 529 Plans in the Protective Learning Center.)
5. Use your current income
Paying out of pocket is often better than borrowing. Most colleges offer tuition payment plans that allow you to pay off the cost of a semester's tuition in monthly installments. If you can't afford to help cover the costs of your child's tuition out-of-pocket, perhaps you can help them by covering the cost of books and/or everyday living expenses instead.
NOTE: As of 2018, the IRS has amended the term “qualified higher education expense” to include a limited amount of annual expenses from a 529 Plan for tuition at an elementary or secondary public, private, or religious school. Source: www.irs.gov/newsroom/529-plans-questions-and-answers.