5 of the Easiest Ways to Pay for College and Reduce Your StressSubmitted by JMB Financial Managers on August 23rd, 2019
Both parents and students alike can become stressed out over the cost of paying for college, even if they are somewhat well off. It turns out you can dramatically reduce your stress and fund a college education by adding a few simple steps to your financial game plan. Let’s review those steps and how you can get started today.
1. Save Every Extra Penny
Whether you have a newborn, a middle school student, a high schooler, or a student that is already in college, it is NEVER too late to set aside money to cover the cost of a college degree. Don’t be discouraged and avoid saving if you are starting late – every cent you save today adds up. Every dollar you save has the potential to earn more money for you.
Ultimately, extra savings translates into having more and potentially better options when it comes time to pay the tab. This can greatly lower stress simply because more options are available to you.
2. Convert Time into Your Ally
It is no secret that the earlier you start saving, the better off you’ll be due to the earning power of the savings, but the true impact of starting early often goes unnoticed. Using the mathematical Rule of 72, you can easily appreciate the value of having time on your side. For example:
- A college fund growing at 4% will double in 18 years – turning every dollar you save for your infant into $2 by the time they head off to college.
- A college fund growing at 6% will double every 12 years -- turning every dollar you save for your first grader into $2, and every dollar you save for your infant into $3 by the time they go.
- A college fund growing at 8% will double every 9 years -- turning every dollar you save for your third grader into $2, and every dollar you save for your infant into $4 by the time they’re off.
Start today! The more you accumulate, the more choices your student will have, and the less all of you will feel overburdened by the cost.
3. Take Advantage of the Available Tax Incentives
Another way to accumulate monies to pay for college is by reducing your income taxes and either (1) adding the tax refund you receive to your college savings or (2) writing a check to the college fund in the amount of the reduced tax payment you owe when you file your tax return. Here’s how to get these tax breaks:
- Two separate tax credits are available – The American Opportunity Tax Credit (“AOTC” and The Lifetime Learning Credit (“LLC”).
- The AOTC provides up to $2,500 tax credit for tuition and fees paid each year
- The LLC provides up to $2,000 for qualified education expenses paid each year
- While you can’t use both credits in the same year and other restrictions apply, this can generate an additional $8,000 to $10,000 through income tax refunds over a 4-year college experience.
- Two separate tax elimination incentives are available – the exclusion of US savings bond interest from taxation, and the exclusion of taxation on withdrawals from a 529 plan and a College Education Savings Account. By avoiding tax on the earnings your savings make, your savings goes further and covers more costs.
Maximize every dollar by maximizing your income tax incentives.
4. Put ACT, SAT, and GPA Figures to Work for You
More attention should be paid to this topic by parents and counselors, because it can potentially have the biggest impact of all the suggestions in this post.
Look at this from the viewpoint of a college: every college wants high rankings in the magazines that rate the schools every which way imaginable. How do colleges move themselves up higher in those rankings? By attracting students that raise the schools’ average scores, which creates opportunity for you.
Here’s how it works. Imagine your student has an ACT score of 23, an SAT score of 1130 and a GPA of 3.38. If you apply to a college whose average incoming freshman from the past few years has an ACT score of 26, SAT score of 1310 and a GPA of 3.49, admitting you to their school will lower their average student profile. They have no incentive to offer you a generous aid package.
On the other hand, if you apply to a school where the average ACT score is 20, the SAT is 1040, and the GPA is 3.18, your student will be attractive to them because he or she will raise the school’s average score. They will be incented to make an attractive financial aid offer to entice you to come to their college.
You can find these average incoming freshman figures and other helpful information in college guides such as the Fisk Guide to Colleges.
5. Choose Your College Wisely
Let’s face it – ego and emotion often conquer logic and spur us into making decisions that sometimes don’t work out all that well in the long run. You can easily fall into this trap by choosing the more famous XYZ University that is more expensive over the lesser known, less expensive University of ABC because your ego gets in the way.
Additionally, some colleges simply have the financial capacity to invest in more resources for their students than others do. Students and parents will often set their sights on the in-state public schools because they appear to be less expensive, but in general, private schools and colleges have more available funding which can make the actual out-of-pocket cost of college lower than the state university with lower tuition and housing costs.
Coming up with the funds to pay for a college education can be very stressful for parents and students alike. In this post, we have provided 5 of the easiest ways to pay for college (without loans) which can greatly reduce that stress. Now that you have the beginnings of a game plan, your child and you are off to a good start. Working with a certified financial planner to prepare and follow a roadmap from now through graduation can help position all of you for success.
Learn how you can implement these proven strategies now by contacting us today.