Parent's Guide to Saving and Paying for College

One of the proudest moments for parents is sending their child off to college. The excitement and joy of this accomplishment is something many parents dream of. However, the reality of what a college education costs may leave parents feeling discouraged and overwhelmed. According to Education Data, the average cost of attending a four-year public college is $25,000 per year. While most families aren’t prepared to cover the full cost of college, there are steps you can take to help save and prepare for their college education.

Start early.

Whether your child is a newborn or a freshman in high school, it’s never too early or too late to begin saving for their college education. Saving for your child’s college education will have a positive impact on how you pay for college. Saving for their education reduces the amount you may have to borrow and reduces the financial burden on your child after they graduate from college. The sooner you start saving, the less likely you are to have to sacrifice saving for your retirement or other financial goals to pay college costs.

Budget for it.

One way to ensure you’re saving for your child’s college education is to factor it into your budget. Review your income and expenses to determine how much you can comfortably afford. Also, look to see where you can cut unnecessary expenses to reduce your spending. After you’ve determined how much you can save, automate your savings by setting up a direct deposit and watch the money grow.

You can grow your savings even faster if you apply extra money from bonuses, windfalls, tax refunds, birthday money, etc., to the college savings account.

Establish a Coverdell Education Savings Account.

A Coverdell Education Savings Account is a tax-advantaged investment account designed to encourage savings to fund educational expenses. This savings account allows money to grow tax-deferred, which means the funds withdrawn are tax-free as long as they are used for educational purposes such as tuition, books, uniform, housing, etc.

Encourage your child to work.

Start having conversations early with your child about the importance of saving for college and how they can help fund their education. You can encourage them to seek a summer job or work-study opportunities while in high school or on campus to earn money to help pay for college costs. When a child contributes financially to their education, they feel more invested and are more likely to complete their education.

Use grants and scholarships.

Before you take out student loans, rely on credit cards, or use retirement savings, make sure you’ve explored scholarship opportunities. First, start by completing the Free Application for Federal Student Aid (FAFSA) application. It puts them in the running to receive financial aid if they’re eligible for specific grants and scholarships.

A scholarship is financial assistance that doesn’t have to be paid back. It’s free money. Scholarships are merit-based financial support awarded to students based on criteria such as academics, sports, career interests, and certain groups such as children of veterans and minority based groups.

Researching and applying for scholarships take time and patience. The best time to start researching and applying for scholarships is your child’s junior year in high school.

Scholarships are made available through employers, high school guidance counselors, colleges and universities, churches, local community organizations, and corporations. You can also find and apply for scholarships on reputable online scholarship sites such as the Department of Education and Scholarships.com. Please note that not all online sites are made the same. Be aware of scholarship sites that charge a processing fee for scholarship applications.

Apply for private and federal loans.

In most cases, families don’t have the money set aside to pay for college, and they have to rely on student loans to pay for tuition, housing, and books. Taking out a loan to cover the cost of college is the most popular option for most families. There are two most common types of student loans: federal student loans and private student loans.

Federal student loans are fixed-rate loans offered by the government. The interest rate is typically lower than a private student loan. It remains the same during the life of the loan regardless of what happens in the market. The federal student loan doesn’t require a credit check, and the borrower is most likely approved for a loan up to a certain amount. Payments for this loan are due after your child graduates from school or if they change their school status from a full-time to a part-time student.

Many financial institutions such as banks, credit unions, and other financial institutions offer private student loans. A private student loan may offer higher loan limits compared to a federal student loan. The borrower may qualify for a lower interest rate if they have good credit. With this type of loan, a credit check is required. There’s a possibility the borrower may not be approved for the loan based on their credit, and the payments are due while the student is still in college.

Consider your retirement savings account.

You may feel obligated to fund your child’s education, and you will do all you can to help them on this journey. However, you’ll want to be mindful not to put your retirement future at risk or on hold to pay for your child's college education. Most financial experts recommend that parents contribute to their retirement savings first and then contribute to their child’s college education.

There are retirement accounts that you may be eligible to withdraw money for qualified educational expenses without being penalized, such as Traditional IRA (Individual Retirement Account), Roth IRA*, and 401(k). For example, with a Roth IRA, you can withdraw funds from the account to pay for educational expenses without being penalized once the account has been established for at least five years. The one thing you’ll want to remember when considering your retirement account is that any money withdrawn from these accounts is money that’s no longer working for you and your retirement future.

Start at a 2-year college.

With the hefty cost of a four-year degree, it may be financially responsible for your child to start their college career at a two-year college, and then transfer to a four-year college to complete their bachelor’s degree. You could save even more money, especially if the college is near your home and your child can live at home. This would provide a significant saving on housing costs.



The cost of higher education continues to rise with no signs of it decreasing in the near future. Saving and paying for college can be daunting, and it can cause a lot of stress for most families. However, by starting early, with proper planning, and by exploring financial options to help with the costs, you’re putting your family in a better position to handle (at least) some of the costs without jeopardizing your other financial goals.

_{*Consult your tax advisor for any tax deductions, benefits, or for any other potential tax benefits regarding IRA accounts.}