Most families rely on student financial aid, such as grants and scholarships, as well as student loans and student employment to pay for college, along with student and parent income and assets. But there are a few alternative approaches that may be used to supplement these traditional methods.
Tuition installment plans are low-cost alternatives to long-term debt that spread out college costs in equal installments over several months to a year.
Peer-to-peer education loans are alternatives to private student loans. They are especially useful for keeping official records of loans from friends and family.
Educational investments are like private student loans, but involve a monthly payment based on a percentage of the borrower’s income as opposed to a fixed dollar amount.
Qualifying for in-state tuition at a public college or university can save a significant amount of money as compared with college costs at most out-of-state public colleges as well as at most private colleges. Most states require the parent to live in the state for at least 12 consecutive months prior to the child’s enrollment.
Education tax benefits provide tax credits and deductions for college costs, college savings and student loan interest. The American Opportunity Tax Credit, for example, provides up to $2,500 based on the first $4,000 in tuition and textbook expenses. The student loan interest deduction provides an exclusion from income for up to $2,500 a year in interest paid on federal and private student loans. Some employers provide employer tuition reimbursement not just for the employee, but also for the employee’s spouse and dependents.
Friends and family may be able to help pay for a child’s college expenses. Some may be willing to contribute to a child’s 529 college savings plan instead of giving tangible presents at birthdays and the holidays. Others may be willing to give money as a graduation present, to help the college graduate pay down student loans and get a head start on life after college.
Save money in a college savings plan. Saving for college reduces debt and increases choice, allowing the student to choose a more expensive college that is a better match for the student’s goals. It is cheaper to save than to borrow. To save $10,000 for college starting from birth, the parents will need to save $26 per month for 17 years at 6.8% interest, total contributions of $5,304. Borrowing $10,000 for college at 6.8% interest will require payments of $115.08 per month for 10 years at 6.8% interest, total payments of $13,810.
Volunteering can earn an education award from the AmeriCorps program. Students can earn education awards worth up to the maximum Federal Pell Grant for a year of full-time service. Parents and grandparents who are age 55 or older can earn a $1,000 education award through the AmeriCorps Silver Scholars program and transfer it to a child or grandchild.
Earn college credits in high school. Advanced Placement (AP) tests, College Level Entrance Program (CLEP) and Proficiency Examination Program (PEP) tests can be used to earn college credit while a student is still in high school. Other options include taking summer classes at a local community college and advanced standing exams after arriving on the college campus. This will help the student graduate in 3 years instead of 4 (or more realistically, 4 years instead of 5 or 6), especially if the student takes a heavier academic course load.
Apply to many colleges to maximize opportunity. Applying to a few extra colleges increases the chances of getting a good financial aid offer from a college the family can afford.
Entrepreneurship. College students have a lot of spending money, making them a good market for selling new products and services.
There are several alternatives that are not recommended, such as home equity loans, retirement plan loans, retirement plan distributions and insurance plans. These may have a low return on investment, high risk and hurt eligibility for need-based financial aid.
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