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How to Pay for College: 5 Funding Options That Make Sense

Financial professionals recommend that parents start saving early and often if they plan to pay for their child’s education beyond high school. And for good reason. Higher education costs are on the rise. For the academic year 2018-19, the average cost of tuition and fees & room and board was $21,370.00 for a public, four-year, in-state college. For a private, four-year college the average price tag increases to $37,430.00. Multiply these figures times four and it’s easy to see why many parents are concerned about having enough money to fund their child’s post-secondary education.

Whether college is 12 years from now or two, parents and grandparents have choices to pay for a child’s college education without tapping into their retirement savings. Here are five funding options that can help you figure out how to pay for college for your future student. 

Educational Savings Accounts

An Educational Savings Account (ESA) is a savings account that benefits both the account holder and the beneficiary. An ESA is not a regular savings account. It is a tax-advantaged investment account. While the contributions are not tax deductible, distributions are tax-free. Contribution limits are based on the account holder’s adjusted gross income, and withdrawals may only be used for qualified education expenses. Students can be the beneficiary of more than one ESA. Parents and grandparents can open separate accounts naming the same child as the recipient of the funds.

Free Application for Federal Student Aid (FAFSA)

Regardless of how much you’ve saved or your income level, make sure your student completes the Free Application for Federal Student Aid (FAFSA). The FAFSA determines eligibility for various types of federal aid which can help pay for college tuition and educational expenses. Students may be eligible for specific financial aid awards, e.g., federal grants, loans, or work-study programs, based on data submitted in the application. Apply annually by visiting Each educational institution sets its own application annual deadline for the upcoming school year, so apply early to ensure your student is able to receive all aid for which they are eligible.

Private Student Loans

If your ESA coupled with your child’s federal financial assistance award isn’t enough to cover college costs, then private student loans might be an option. Make sure you shop around since private student loan programs differ by lender. These credit-based loans are typically at an interest rate higher than federal loans and may require a creditworthy cosigner. However, student borrowers may qualify for a lower interest rate. For example, the Sallie Mae Smart Option Student Loan offers lower interest rates based on creditworthiness making them an affordable option.

Employer Scholarships

Working high school seniors and college students should check with their employers for internal scholarship opportunities. Since employer-based scholarships are limited to a smaller pool of applicants, i.e., employees, your child has a slight advantage compared to national scholarships. Award amounts vary by employer.

Employer Tuition Reimbursement Programs

Many companies help their employees pay for college coursework, after the fact. Unlike employer scholarships, tuition reimbursement programs reimburse expenses after college level coursework is completed at a satisfactory level, e.g., a course grade of “B” or better. Be sure your student reads and understands the employer’s tuition reimbursement policy. Employees are normally required to obtain approval for reimbursement prior to class enrollment. The average annual reimbursement amount varies by employer, but averages $5,000.00 annually.

You have more than one option for paying for your child’s college degree. Saving for future educational expenses is smart and should begin with an Educational Savings Account. Once your ESA is funded, consider these often overlooked sources of financial assistance to supplement the costs of higher education.

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