According to Pew Research roughly half of Americans are middle-class. When it comes to paying for college, this group is easily squeezed. They make too much to be considered need-based (i.e. eligible for the Federal Pell Grant or subsidized loans) but not making enough to comfortably pay out of pocket to send their children to college. That means roughly half of Americans might find the cost of sending a single child to college a financial strain. This strain increases exponentially for families with more than one child to send. They are “too rich” for need-based aid and “too stretched” to simply write a check.
College tuition has risen 60% in the past two decades. Federal financial aid exists for families in need to help address these rising costs. The Department of Education uses information on the FAFSA (Free Application for Federal Student Aid) to determine an applicants SAI (Student Aid Index) number to indicate their individual level of need. The federal government as well as state schools will take an SAI into account when determining what, if any, financial aid to offer. Many middle-class families, even if struggling financially, may not qualify for anything more than unsubsidized loans.
While challenging, college is not impossible - even for the middle-class, but practicality needs to prevail. Families need to be very intentional in their budgeting and planning if the goal is to send one or more children to college.
The True Costs of College
Many people don’t fully appreciate all the costs associated with attending college. Most will think of tuition, which is in fact a large cost, but there are other expenses involved as well. Expenses such as room and board (also a large expense), books, fees, supplies, transportation and personal expenses add up very quickly, making it even more important to be sure to account for everything when comparing colleges.
It's common knowledge that public universities are more affordable than private. But that speaks primarily to in-state tuition for public schools. Out of state tuition for a public school can cost almost as much as private school tuition in some cases. Furthermore, schools typically raise tuition annually, making it’s necessary to factor this in when estimating the total cost of attending college and plan accordingly, to avoid financial surprises down the road.
Setting Financial Goals for College Savings
College will be one the largest expenses in your kids life making it important to be sure to set clear financial goals. Doing so will make the process more manageable and help you avoid any financial pitfalls. Here are some steps to help you create a plan that works for your family:
Evaluate Your Family’s Financial Situation
Start by taking a financial inventory. Look at what money is coming in, such as income and what money is going out, such as on-going monthly expenses (rent, car or credit card payments for example) and other long-term goals like saving for retirement. This will help you fully understand what’s realistic to spend on college while still balancing other priorities.
Determine a Savings Target
Given your specific circumstances, such as how many children you have, decide how much you plan to contribute to their educational costs. This would also be a good time to bring your children into the conversation to help them appreciate the gravity of the expense. Talk about expectations, like how much you will contribute vs how much they are expected to contribute through scholarships, income from part-time jobs, savings, or maybe even a student loan.
Break It Down by Child
To make it fair for families with multiple children, you can manage their expectations by breaking down your savings goals for each child. Take advantage of tools like online calculators to estimate tuition and other costs. Modify the plan so that each one reflects your children’s age and anticipated educational path.
Your Savings Options
As you are planning for college for multiple children, its important to understand your options for saving and how to make those dollars stretch as much as possible. Here are some savings strategies:
529 Plans
One of the most popular ways to save for college is a 529 plan. 529 plans are a great option because they come with desirable tax benefits. Money in your plan can grow without being taxed and when the time comes to withdraw it, you can do so free of federal taxes, as long as it’s used for qualified educational expenses. This includes: tuition, books, room and board, fees among other qualified expenses.
It would be advisable to open a separate 529 account for each of your children as early as possible (some families do this at birth), to give your money more time to grow before they go off to college. Separate accounts will also allow you to keep track of each child’s savings progress. If one child chooses another path and doesn’t go to college, a portion of the money can be moved into an IRA account or you can change the beneficiary on that account to help another child go to college. 529 plans offer a fair amount of flexibility to be sure that every dollar saved is put to good use.
Regular Investment Accounts
In addition to 529 plans, you can always invest your money into a regular investment account. Money earned in these accounts can be used for anything with no restrictions which makes them a nice plan B in case any unexpected costs or unqualified education related expenses arise. Traditional investment accounts lack the tax benefits of 529 plans, but they do offer a flexibility that might be of value to you.
Automation is Key
Whether you put your money into a 529 plan, a traditional investment account or even just a high-yield savings account, automating your deposits is key to ensuring savings success. Set up automatic transfers, even if it’s just a small amount, to consistently contribute without having to make a concerted effort every month. Regular deposits will add up over time and help you and your children stay on track to meet your college savings goals.
Scholarships and Grants
Just thinking about paying for college with multiple kids can be scary, but it has and can be done, especially if you take advantage of scholarships and grants which can reduce the total costs. Since this type of aid doesn’t have to be repaid it’s the most ideal way to pay for college and should be prioritized when developing a plan to cover college costs.
Merit-Based Aid
You don’t have to be in financial need to get a scholarship, there are a number of awards for student achievements in academics, athletics, interests, talents or extracurricular activities. There are countless schools, organizations and businesses looking to rewards students. Encourage your children to maintain good grades, get involved, participate in activities and pursue leadership roles. Support their talents in the arts, music, writing and more, as these can also lead to scholarships to help pay for college.
Finding scholarships is not hard, however finding the right ones to spend your time on does require some strategic thinking. Look for opportunities where you have the greatest chances for winning, such as local scholarships offered by community groups, businesses or civic organizations nearby. The pool of applications will be smaller for these local scholarships.
You can also utilize online platforms like Edvisors Scholarship Finder. When using these larger search engines try to filter down to scholarships where you meet most if not all of the criteria to increase your chances of winning. These will take time to apply for but if your children dedicate time each week, similar to their studies, it could pay off big.
Target Colleges Offering Generous Merit Aid
Not all colleges are the same when it comes to scholarships. Some private schools offer excellent institutional scholarships to attract talented students, which surprisingly can make them more affordable than they first seem. Research schools known for their generous merit-based aid, this information is often found right on their admissions or financial aid pages. Compare these offers when choosing where your child will apply.
Cost-Cutting Strategies
When you’re planning to send multiple kids to college there are some smart strategies to make it more manageable. Here are some ideas to help you cut costs while ensuring your children get a quality education.
Start at a Community College for the First Two Years
Community colleges are a great way to save money without sacrificing education. Tuition at community colleges is often much lower than universities and students can complete general education requirements before transferring to a four-year school. By starting here, your kids can save thousands of dollars on tuition, housing, and fees. Plus, many community colleges have agreements with state universities to make transferring easy and seamless.
Take AP/IB Classes and Dual Enrollment
Encourage your kids to take Advanced Placement (AP), International Baccalaureate (IB), or dual enrollment classes while they’re in high school. These courses allow them to earn college credits before they even set foot on campus. By reducing the number of credits they need to graduate, your children can shorten their time in college and reduce costs significantly.
Take Advantage of Sibling Discounts or Family Plans
Some colleges offer discounts for families sending multiple children to the same school. These sibling discounts or family plans can make a big difference in lowering the overall cost. Be sure to ask each school about these options during the application process, you might be surprised at the savings available.
Prepare for the Unexpected
If you find yourself needing extra funds, student loans can help, but it’s best to approach them cautiously. Federal student loans should be your first option because they offer more flexible repayment plans. Make sure to explore options like subsidized loans, where interest doesn’t accumulate while the student is in school. Try to avoid high-interest private loans, which can become a heavy financial burden later. Remember, borrowing should be your last resort, exhaust scholarships, grants, and work-study opportunities first.