Smart Ways To Cover The Cost of College

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.

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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

Many 529 plans have also added certificates of deposit and money market funds to their offerings since the recession.

Financial Aid

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, and

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.

The College Debt Crisis - See Complete Coverage
The College Debt Crisis - See Complete Coverage

"Federal loans are cheaper, more readily available and have better repayment terms than private student loans," says Mark Kantrowitz, founder and publisher of, one of the most comprehensive sources of student financial aid information.

Interest rates on federal student loans are fixed at 6.8 percent and loan maximums range from $5,500 for freshmen (dependent students) to $7,500 for seniors. If you're eligible for a need-based federal loan, interest rates are lower this year at a 4.5 percent fixed rate.

Private student loan rates are often variable and not all private loans are created equally. Look around and consider the total cost over the life of the loan, Kantrowitz suggests. Also, paying all or partial interest while in school and finding a loan with a shorter-loan term can save you significantly.

Tax Credits

Despite the wranglings over the tax deal in Washington, there are some perks for paying for college that you don't want to overlook.

Tuition tax credits can add up to $2,500 a year in savings on your federal taxes, as long as you meet the income requirements.

The Hope Scholarship Tax Credit offers a credit of up $2,500 for tuition, fees and books and supplies for the 2010 tax year. Go to to see if you're eligible for this year. And keep your eye on the details for future education tax credits.

Reduce expenses

Living off-campus (if not at home) can be a huge savings on room and board.

Also, hit the books for less by renting books online at sites like and (a subsidiary of eBay) which offers textbooks for a fraction of their retail cost and you can sell them at the site too.

Students on a meal plan should opt for one that allows more flexibilty by covering meals for the semester, rather than a weekly allotment.

Build a Plan!

Most importantly, make sure you build a college savings plan that covers the student's entire stay and consider what the starting salary will need to be after graduation to keep loan payments manageable.

"A student's debt at graduation should not exceed their starting salary over the first few years," says Baum, citing a general rule.

Calculators at finaid.organd can help parents and students figure out how to budget for college costs.

And if your financial situation declines while your child is in college, make sure you notify the university as soon as possible—that may also help free up funds.

"Email the provost, email whoever you can and ask questions," says Lisa Staiano-Coico, president of City College of New York. "Very often there is money that can help bridge these gaps, but you need to ask and you need to find it."

Watch the "Price of Admission: America's College Debt Crisis," a CNBC Original documentary.