Embarking on a journey toward higher education is an exciting endeavor for young adults. For some, college is the first step of adulthood, living on their own and discovering a new world of opportunities. Over the past few decades however, the cost for this journey to self-discovery has gotten expensive. According to a report from U.S. News, college tuition has risen more than 125% over the last two decades. It is becoming increasingly imperative for parents and students to create a financial plan that combats the overwhelming debt students will face when they graduate. Whether you are a parent, future student, current student or have just graduated, using some of these tips could help you manage the cost of education.
Before College:
Steps towards a debt-free degree begins long before college starts. Some steps begin as soon as the to-be student is born while others occur as college applications are sent out. Below are some of our recommendations:
- Invest in a 529 Plan – A state-sponsored investment account with tax benefits made for educational expenses.
- Save Some Money Every Month – Automatic transfers of a portion of your income every month is the easiest way to save money for college.
- Know How Much College Costs – It’s hard to save money when you don’t know how much to save. Creating a financial goal based on actual costs allows you to set up realistic monthly saving goals.
- Research Financial Aid Guidelines – See what types of federal and private financial aid the student may qualify for and their deadlines.
- Check Out Available Private Student Loans – There are thousands of options for different credit scores and interest rates. Research ahead of time the best loans for your situation.
- Invest in Your Interests – Sports, dance, writing and many more fun activities can turn into financial opportunities through scholarships and grants. Investing time, energy and a little money into the student’s interests early on could change their life.
- Consider Alternative Colleges – Many students have found other strategies to navigate the cost of college including going abroad, attending community college or enrolling a less expensive in-state program.
- Start College Early – Taking college-level courses during high school through a program or community college can take the place of a regular college course later, often at a fraction of the cost.
While Earning A Degree:
When school season starts, paying for college means deducting costs in addition to saving. A popular method of paying off classes is taking on a job during the summer or school year, but that isn’t always feasible. Here are a few more actions to consider:
- Financial Aid – Apply for financial aid through FASFA and other aid programs every year to receive qualified financial support.
- Work Study Program – This federal program offers jobs to undergraduate and graduate students while they attend school, most of the time on the campus itself.
- Become an RA – Residential advisors receive free room and board in exchange for acting as peer mentors for others in their dormitory.
- Create a “Paying for College” Budget – Students who utilize the 50-30-20 strategy for saving can tuck away some earned income while setting themselves up for financial success in the future.
- Taxes – The following tax credits are available for the same years that educational expenses are incurred. Note that neither of these credits can be applied to expenses paid for by 529 plans.
- The American Opportunity Tax Credit – An up to $2,500 credit for education expenses per undergraduate student for up to four years.
- Lifetime Learning Credit – A $2,000 credit for education expenses per year when an undergraduate, graduate or other eligible individual pursues a high education course of study.
- Scholarships/Grants – Researching online or talking to professors can lead students to thousands of scholarship opportunities awarded based on merit, need or other qualifications.
After College:
Whether the student graduates, decides to take a break or drops out of college altogether, they may still be left with thousands of dollars of student loans to pay back. Student loan planning establishes a sound foundation for repaying student loans to minimize the financial burden. Some key aspects of student loan management include:
- Loan Forgiveness and Discharge Programs – Qualifying for a loan forgiveness program could mean the relief of thousands of dollars of debt. The government student aid website includes a list of qualifications and programs to apply to.
- Interest Management – Interest can make loan payoff longer than need be. Making payments while attending college or soon after lowers the primary balance owed on the loan and lowering the overall incurred interest.
- Snowball Debt Management – Applying payments from debt you’ve paid off to other debts you may have, is a strategy for quickly eliminating multiple sources of debt including student loans.
- Student Loan Interest Tax Deduction – If you have made interest payments to existing student loans this year, you could qualify for this tax deduction of up to $2,500.
- Seek Professional Advice – If you are struggling with the financial burdens related to your education or want to better financially prepare for the future, seeking out a financial planning professional is a great first step.
Do you need help preparing for college education expenses or paying down related debt? Please contact Judith Barnhard via our online contact form for more information.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.
