5 Ways To Pay For The College Your Child Got Into

High schooler excited to receive an acceptance letter from a university

It’s college admission season. If your child has gotten into a great university but it comes with a high price tag, you may be racking your brain to figure out how to pay for that school. You’re not alone in this anxiety: 78% of families say they eliminated a college from their consideration based on cost alone, according to a 2023 report by Sallie Mae. This is a discussion of five methods for paying for college and when each option may be appropriate.

Financial Aid

Almost 84% of college students benefit from some form of financial aid, according to Education Data Initiative. The College Board research indicates that the average aid to a full-time undergraduate student in the 2022-2023 school year was $15,480.

If you want any sort of help with paying for college, a critical first step is filling out the Free Application for Federal Student Aid, also known as FAFSA. FAFSA does not have an income or asset limit. Needs for aid are assessed based on a calculation for your Student Aid Index versus the school’s cost of attendance. The SAI looks at income and specific assets of both the student and the parents.

So, if you make a joint income of $200,000 and have some assets counting toward the calculation, you have a better chance of receiving aid for your child to attend high-tuition university than a low-cost state school. Either way, if you can’t comfortably pay for college from your income and investments, it’s worth taking the time to fill out FAFSA because the National College Attainment Network estimates that students missed out on $3.6 billion in Pell Grant funding by not filling out their forms.

Income

If you are a high-earner and don’t qualify for any level of financial aid, you may opt to cover all or a portion of schooling expenses from your income. If you own a business, I’ve also seen instances where parents have hired their children to work at the business and paid the child an income to cover tuition, books, room, board, and incidentals. If you do this, Kiplinger Personal Finance explains how there can be some tax benefits involved but it’s important to make sure your child is actually doing work they’re getting paid to do.

Investments

There are many types of investment accounts specifically tailored for college, including Coverdell education savings accounts, 529 College Savings Plans, and Education Savings Bonds. All of the listed types of investments count against your child’s ability to qualify for financial aid through FAFSA because they want you to spend down investments prior to federal aid kicking in. If you have one of these, I encourage spending that down first, before turning to other assets or funding sources. If you do not use these types of accounts for qualified education expenses, you risk facing taxes and penalties.

You may also look to accounts not specifically tailored to college, such as Uniform Transfers to Minors accounts or standard investment accounts. If the assets are in the name of your child, they will reduce your child’s ability to qualify for financial aid. Assets in your own name do not weigh as heavily on the federal aid calculation. If you liquidate money from a standard investment account to pay for college, you may be subject to capital gains taxes if your portfolio has gone up.

Occasionally, I see investors look to their retirement accounts to fund their child’s college expenses. I urge caution in this approach. College can be paid for with loans, but retirement cannot be. If you have more than enough in a retirement account to cover your retirement and you’d like to use the excess to cover college costs, there are still some limitations. If you are not 59 ½ years old, you could face severe taxes and penalties for dipping into a set of pre-tax retirement assets early. If you have some Roth investments, consider pulling those first. You can withdraw the dollar amount that you put in without taxes and penalties being applied. Again, this should only be an option for those who are fully funded for their retirement goals.

Scholarships

To pay for college, 61% of families used scholarships, Sallie Mae found. A common misconception is scholarships are only awarded for students with exceptional grades or abilities. Another misconception is that if a student does not qualify for need-based aid, it’s not worth it to apply for scholarships. The reality is there are a wide variety of scholarships available to a wide range of students, including those from individual companies, schools, government agencies, nonprofit organizations, and more.

Many high schools have scholarship information your child can access, or you could do a quick Google search to see what kind of scholarships are currently available, along with requirements for each award. Make sure your child keeps track of deadlines and applies on time.

Loans

When financial aid, income, investments, and scholarships fall short, families can turn to student loans. Borrowing accounts for about 19% of college funding sources, per the 2023 How America Pays for College report. When a student or parent opts to take on a loan to pay for college, the consideration of future repayment of the loan needs to be top of mind. Loan interest rates are not what they once were. When your children get out of college, they could be contesting with high-interest debt and a dismal starting salary.

Jointly thinking through repayment and career expectations could help set your child up for success.

Conclusion

Figuring out how to pay for the school your kid got into can be a daunting task. Paying for college involves work and research but there are many opportunities for getting some or all of your child’s school paid for. These opportunities include financial aid, grants, and scholarships. When considering income and investments, some sources come with more advantages than others. And finally, when considering loans, it is critical to look to the future to ensure the loans will not be a significant burden in today’s interest rate environment. Paying for college will likely involve some combination of several of the strategies discussed.

This article was originally published by me on Forbes.

This informational and educational article does not offer or constitute, and should not be relied upon as, tax or financial advice. Your unique needs, goals and circumstances require the individualized attention of your own tax and financial professionals whose advice and services will prevail over any information provided in this article. Equitable Advisors, LLC and its associates and affiliates do not provide tax or legal advice or services. Equitable Advisors, LLC (Equitable Financial Advisors in MI and TN) and its affiliates do not endorse, approve or make any representations as to the accuracy, completeness or appropriateness of any part of any content linked to from this article.

Cicely Jones (CA Insurance Lic. #: 0K81625) offers securities through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN) and offers annuity and insurance products through Equitable Network, LLC, which conducts business in California as Equitable Network Insurance Agency of California, LLC). Financial Professionals may transact business and/or respond to inquiries only in state(s) in which they are properly qualified. Any compensation that Ms. Jones may receive for the publication of this article is earned separate from, and entirely outside of her capacities with, Equitable Advisors, LLC and Equitable Network, LLC (Equitable Network Insurance Agency of California, LLC). AGE-6531313.1 (4/24)(exp. 4/26)