Kelsey Mason is the associate director of regulatory and legislative affairs for the Education Finance Council, the trade association representing state-based and nonprofit higher education finance organizations.
U.S. News: What are the best financial vehicles for saving and paying for college, especially if your child is already in high school?
Mason: Starting to save for college once a student is in high school can still be incredibly impactful. Even small-dollar savings accounts increase the likelihood of college enrollment and completion.
- Families should always consider 529 plans. The earnings in these investment accounts grow tax-free, and withdrawals for qualified education expenses are tax-exempt.
- There are two types of 529 plans: college savings plans and prepaid tuition plans. The former are generally available to everyone, while prepaid tuition plans (which lock tuition in at its current rate) often have residency requirements and may be less flexible.
- Many states offer financial incentives for 529 accounts, including tax credits or bonus contributions.
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Coverdell Education Savings Accounts and Roth IRAs are other options that use after-tax dollars to save and pay for college.
- They provide more flexible investment options but are offered by private financial institutions and have more restrictions than 529 plans.
Families should not avoid saving for college for fear of its impact on student aid eligibility, as the federal student aid calculation weighs parental income significantly more than parental assets.
U.S. News: To evaluate the return on investment for the price of a college degree, what are some key factors to consider?
Mason: A useful free online tool is the U.S. Department of Education’s College Scorecard.
- The tool provides information on tuition ranges, graduation rates, average student loan debt and typical monthly loan payments at different schools.
- You can also view median earnings of graduates broken down by college and program of study.
And when you evaluate financial aid offers, be aware that the package for the first year may be more favorable than future years.
- Discuss this possibility with each college’s financial aid administrators to get the lay of the land.
- You must re-apply for federal student aid each year, and packages may differ year to year even if your financial situation remains the same.
U.S. News: What should you keep in mind if you need to borrow money to pay for college?
Mason: After exhausting free grant and scholarship aid, the next step is to determine eligibility for federal direct student loans, which can be subsidized or unsubsidized.
- These loans are taken out by the student and have lower interest rates, fees and more favorable repayment options than a parent PLUS loan, in which parents borrow on behalf of a dependent student. While PLUS loans are often presented alongside federal direct student loans on financial aid offers, they may be more expensive than some private loan options.
- Shop around to compare interest rates, fees and repayment plans between private loans and federal PLUS loans. Be sure to include nonprofit/state-based organizations in your search, as they may be the most favorable option.
High school students can also reduce the cost of college by earning college credit to shorten the amount of time needed in college to earn a degree.
- Options include credit awarded from Advanced Placement exams, dual-enrollment courses and College Level Examination Programs.
- In all cases, confirm with specific colleges to ensure these credits will count toward a degree.
