The Money Talk: Put college funding into high gear

paying for college

By Judy McNary

Much has been written about the high cost of attending college in the United States. Just a few short years ago, jaws dropped as the first private universities passed the $50,000-per-year mark. Now, list price has surpassed $60,000 per year at many top-tier schools. A recent survey of college pricing by the College Board put the average cost of an in-state public college at $22,826.

In The Money Talk, Part 1: Setting expectations with your student, I explored “Fit, Finance, and Finish,” a three-pronged approach to framing a college search strategy with your high school student. This week we’ll take a look at some of the different higher education financing and savings options available to your family.

It’s not just the 529 Plan

Ideally you began saving for your child’s college education the day you brought her home from the hospital. 529 savings accounts are investment accounts that allow your savings to grow tax-free as long as withdrawals are used to pay for approved higher education expenses. To further sweeten the pot, many states offer a deduction on your state income tax for contributions made to state-approved 529 plans.

What’s suitable for one family may not best for another, so working with a Certified Financial Planner® can help. Another wonderful resource is I’ve mentioned this website before but it’s worth mentioning again because it has so much useful information on 529 plans.

If you started while your student was young and invested in a diversified portfolio, chances are good you have a sizable nest egg to pay for her college. As with anything, there are drawbacks to putting too much money in 529s. Since these accounts are strictly for educational expenses, money taken out for other purposes is subject to taxes and penalties. If your student is a good candidate for scholarships you want to be careful not to overfund the account.

Additionally, if there is a reasonable chance your student might choose to spend her 20s backpacking through southeast Asia you may not want to overload the 529 account. Once parents have two years’ worth of college funded in 529 accounts I recommend stepping back and reviewing the role of the 529 within the overall family financial picture. If there are siblings, money left over in one account can be transferred and used by a sibling, but if not it may make sense to set savings aside in a brokerage account and add them to the 529 only when it’s certain they will be needed over the next few years for college. You lose out on some of the benefits of long-term tax-free compounding with this approach, but you gain flexibility.

Recovering from a late start

Let’s say you were busy watching your son try out for his first travel soccer team and next thing you know he’s a high school junior looking at colleges. Your best intentions to ramp up college savings each year didn’t happen and now you have much less than you’ll need set aside. Let me offer a few suggestions for how to make up a big shortfall on a limited budget.

AP/IB course credit

Many high schools offer courses that can potentially earn college-level credit. Encourage your student to take advantage of this for a of couple reasons. First, it will prepare her for the level of work required at college so the transition will be easier. Second, it may save you LOTS of money. At the end of the school year your student will have the option to pay to take the AP/IB exam for each class taken and if the score is high enough, she may earn college credit. The cost of the exam varies but it’s around $100/course. So if your student can take five AP classes in high school and earn credit on the exams you’ll save a semester in college. At an in-state public school, this $500 investment is worth $11,000; at a private school it can be worth as much as $30,000.  Not all colleges accept AP/IB credit, of course, but this should be part of the conversations you have with your student and with any prospective schools.

Apply for financial aid and scholarships

Even students and families who think they may not qualify should apply for financial aid by submitting the FAFSA (and the CSS/Financial Aid PROFILE, if required by the college). There are many different types of financial aid, including merit aid and Work Study, and receiving an award can bring the cost of attending a particular school down to a manageable place.

Applying for scholarships can be another piece of the puzzle. This takes research and perseverance. Put your student to work!

Consider Community College

Perhaps your student isn’t sure what she wants to study. Instead of committing to and investing in a four-year institution, suggest beginning with a year at a community college for a fraction of the cost. It is an affordable way to fulfill many required courses as well as explore different options. Check the accreditation of the college to make sure the credits will transfer to the universities your student might want to attend after the first year or two.


Reserve Officer Training Corps programs are offered at more than 1,000 colleges and universities. Students in ROTC commit to serve in the military after they graduate in exchange for having their college education paid for. Each branch of the armed services has its own ROTC program and, upon graduation, students enter as officers. This is a great option for students interested in military careers.

Working during college

Once in college there are many ways students can work their way through, or at least contribute to expenses. On some campuses, Resident Advisors (RAs) are provided room and board along with pay for certain hours worked. Teaching Assistants (TAs) help professors lead tutorials, labs, and more. Encourage your student to look at the school’s job board — there should be opportunities in nearly every department, from the dining hall to the Admission Office to backstage at the university theatre to Buildings and Grounds. A campus job provides income and can open up some interesting career options.

Student Loans

We have well over a trillion dollars’ worth of student debt in the United States and I don’t want to encourage you to add to this number. However, if your family has no other options, your student may consider taking out a student loan. There are excellent resources to help you understand which will work best for you. The only piece of advice I would like to leave you with on this topic is that just because someone gives your student a loan for a certain amount doesn’t mean she should spend it! Borrow as little as you need — don’t let it be an excuse for your student to have a nicer apartment or a blowout spring break. I have met with too many sad college graduates weighed down with in excess of six figures in debt and more than a small twinge of regret. That’s not what college is for, so support your student in being responsible about borrowing.

I hope this article has given you some ideas about how to curb college costs for your student. I’m a big believer in the value of education but I also believe in doing all you can to get the most value for your money. It makes us all better off!