Tip: Read on for our affording college checklist — and be sure to check out our choosing a college checklist, preparing for college checklist and applying for college checklist, too.
Knowing your child is college-bound is a proud feeling for parents. It can also be a financially daunting one. That’s because most parents haven’t saved enough to cover the costs. In fact, Sallie Mae’s latest “How America Saves for College” report notes that the average family saved around $18,000 for college. At the time of that report, this number was on the rise.
However, it falls short of the 2020-21 rates of $26,820 for public four-year universities and $43,280 for private nonprofit four-year schools, notes the most recent “Trends in Higher Education” report by The College Board (which factors in tuition, fees and room and board).
Here are six key areas to explore when it comes to financing your child’s future higher education.
1. 529 plans
Whether your child is 6 months old or just turned 16, one of the primary ways to save for college is to invest in one of Michigan’s two college savings plans: the Michigan Education Savings Program (MESP) and Michigan Education Trust (MET).
Both are 529 savings plans. The “529” stands for the federal code that designates contributions to these plans tax-exempt. Both can also be transferred to out-of-state schools.
MESP is similar to a 401(k), so funds fluctuate with the economy. It can be started with as little as $25. There’s no limit to how much money can be invested annually, but the maximum balance per account is $235,000. Funds cover tuition, room and board, and any additional college costs at any accredited public or private university, community college or vocational school in the United States — and even abroad.
With MET, money is used solely for tuition, and there are three plans to choose from: full, limited and community college. MET allows families to pre-purchase tuition at today’s rates, which will then be paid out as the future cost of the child’s college education, whether in state or not.
This type of financial aid does not need to be repaid, so it’s a great place to start figuring out funding for college students.
As you research the grants available for your student, you’ll find that many are based on financial need. These grants can come from the state or federal government, the college you’re considering or even private organizations.
Keep in mind that if your student receives a grant, there may be rules about how long he or she must stay enrolled or rules on paying it back if they withdraw from school. Need-based grants may also be reduced if students become eligible for other types of financial aid.
Scholarships are another financial aid option that doesn’t need to be repaid. While some scholarships are difficult to obtain, the good news is that the options are nearly endless since thousands of organizations offer them.
Requirements vary based on the type of scholarship for which your student applies. Some are based on need, while others are given for merit. A student could qualify because of academics, athletics, community service, artistic talent or other merits.
Colleges and various corporations and organizations offer scholarships.
Both federal and private loans are available to assist students with paying for the cost of college. With a loan, your student will borrow money that must be paid back with interest — but the interest rates and terms available vary widely.
The federal government offers federal student loans that typically have low interest rates and flexible terms.
When students need more funding, private loans are offered by banks and other lending institutions that set their own terms and tend to be costlier.
Loans can also be taken out in a parent’s name. The federal government offers parent PLUS loans.
5. Work-study options
Many students opt to work full- or part-time while attending college to help pay for tuition. The Federal Work-Study program is a form of financial aid that offers part-time jobs for college students who demonstrate financial need.
With this program, students often are placed in positions related to their area of study – often at the college the student is attending or at a local public agency or nonprofit organization. These jobs are sometimes easier to find than hourly positions.
The program is federally funded and currently available at 3,400 participating institutions.
A critical step to evaluating your child’s financial aid options is filling out the FAFSA, which stands for Free Application for Federal Student Aid.
By submitting this form, you’ll find out if your student is eligible for federal grants, work-study or loans, all based on your individual circumstances.
Timing is key with the FAFSA; you’ll want to fill it out as soon as possible once it becomes available on Oct. 1 (for the next school year). According to Federal Student Aid, a part of the U.S. Department of Education, aid is based on the following factors:
- The cost of attendance at your child’s chosen school
- Your “expected family contribution,” which is calculated using your taxed and untaxed income, assets and benefits (such as unemployment or Social Security)
- Your family size and number of family members in college or vocational school
Parents can apply online, print and fill out a PDF of the application, or request a paper FAFSA by calling 800-4-FED-AID (800-433-3243). For more information, visit studentaid.ed.gov.
This post was originally published in 2019 and is updated regularly.