One option is a Private College 529 Plan. It has the same tax benefits as other 529 plans: As long as the money you contribute is used to pay tuition and mandatory fees at participating schools (which don't have to be designated until the time of enrollment), there aren't any federal tax consequences. This plan differs in that it allows parents to buy certificates, or credits, that can be cashed in for tuition at any of more than 275 participating schools at today's tuition rates. The plan added 14 new schools from the Midwest last week.
Traditional 529 college savings plans share the same tax advantages, but they differ in that account holders (or their advisors) choose how the funds will be invested and take on the investment risks. And they don't typically lock in a tuition price.
If savings plans don't provide enough to cover the full costs of tuition, loans and grants can help make up the difference.
Would-be students should complete the Free Application for Federal Student Aid, an application used by nearly all colleges and universities to determine eligibility for federal, state and college-sponsored financial aid, including grants, educational loans and work-study programs that can help defray the costs of an education.
The variety and complexity of loans can be confusing, but there's one key rule to keep in mind. "A rule of thumb in the financial aid world is to always borrow federal first," said Kathryn Randolph, a former admissions officer and a contributor at FinAid.org.
Federal loans, compared to private, generally have the lowest interest rates and more generous default terms. Moreover, federal loan consolidation allows borrowers to bundle several federal loans together.
The Department of Education also offers income-driven payment plans that feature lower payments and repayment periods of 20 to 25 years. But while these programs may offer smaller monthly installments, they can accumulate more interest over the long term. For those who choose to work in the public or non-profit sector, there are also opportunities for loan forgiveness or cancellation.