Smart Ways To Cover The Cost of College
CNBC Senior Commodities Correspondent & Personal Finance Correspondent
Taking simple steps to save and search for college funds may not cover the full freight, but it can at least make tuition, room, board and other expenses a little more affordable.
Sandra Wathall, an insurance claims specialist in Charlotte, North Carolina started early. She's saved $3,000 in a 529 college savings plan for her 8-year old triplets through rebates she's received shopping online and at stores that have partnered with UPromise, a program that will funnel these savings directly to a 529 savings plan.
"I didn't really think it would amount to anything, " says Wathall. Now she plans to have at least $10,000 to $15,000 saved in this account before her children go to college.
Saving early is the best way to start, but most families don't know where to begin. A study earlier this year by Sallie Mae and Gallup found that in this economic climate, most parents— about 70 percent of those surveyed—say a college degree is more important than ever, yet nearly three-quarters of families admitted they have no plan for how they'll pay for it.
Families may be willing to stretch financially to pay for college, but it's important to be smart about how to make it more affordable. For many families, college costs seem to be taking an even bigger financial toll.
According to the SallieMae/Gallup study, the total cost of attendance including tuition, room and board and other school costs (not including financial aid) totaled $18,659 in the 2009-10 school year, a 17 percent jump from the previous year and up 28 percent from two years ago.
Double-digit percentage increases in tuition and fees at public universities in some states—including Arizona, California, Florida, Massachusetts and New York—may have contributed to the overall rise.
In addition, parents may be realizing that a lot more goes into the college cost than merely tuition and fees. The College Board has estimated other student costs averaged about $12,500 in the 2009-10 school year.
But parents' response to rising college costs has been to dig deeper into every source, says Dr. Bill Diggins, Gallup's lead reseacher on the study.
"Parents are using more of their own income and savings and students are borrowing more. They're also taking steps to reduce expenses," Diggins says.
Half of parents in the SallieMae/Gallup survey say they're working more and two out of five students are living at home to keep costs down.
What else can they do to help foot the college bill? Here are seven strategies families should consider to help pay for college during these tough times:
529 College Savings Plans
These are tax-advantaged plans have no income limitations, and are easily transferrable to another beneficiary, if needed. This year, students can even cover the cost of a new computer from 529 plan funds.
Parents concerned about the performance of 529 plans over the past few years, particuarly in 2008, should make sure it invests very conservatively as the child gets close to college years. For a student who is 17 or older, play it safe with 15 percent or less of total assets in stocks suggests Joseph Hurley, founder of savingforcollege.com.
Many 529 plans have also added certificates of deposit and money market funds to their offerings since the recession.
Don't assume you won't qualify for any aid. Fill out the Free Application for Federal Student Aid, FAFSA, form.
"The most important thing you can do is fill out the FAFSA. It's the gateway not only to federal grants and loans but also to most college and state grants and it will help you make sure you qualify for everything that you can," says Lauren Asher of the Institute for College Access and Success in Oakland, California.
Yet, nearly one out of four families did not submit the FASFA form, according to the SallieMae/Gallup study. If you're starting school in the spring, make sure you're ready as soon after January 1st as possible to complete the FAFSA for the 2011-2012 school year since most deadlines for the 2010-2011 school year have already passed.
Don't pass up free money!
Scholarships aren't only need-based—even wealthier families can get some help. Nearly one-third of families with incomes over $150,000 a year covered costs with scholarship money, according to the SallieMae/Gallup study.
Students should start to research scholarships in their sophomore and junior years in high school to find out the type of community service activities and essays that may be required.
"Don't ever pay for scholarship databases," says Sandy Baum, an economist at The College Board. Free scholarship searches are available at fastweb.com, collegeboard.com and salliemae.com/scholarships.
Finding The Right Loan
Federal vs. Private Student Loans
If you need to borrow, look at federal student loans first. Then, consider private loans if you still have a gap.