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4 Tips: How To Pay for College

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4 Tips: How To Pay for College


Student debt of over $1 trillion has surpassed credit card debt in the United States.

  • When it comes to saving and paying for college, be patient and be realistic about what you can expect from financial aid.
  • Start early and consider signing up for tax-advantaged accounts to make the most of your college savings.

AFL’s JoAnne Reilly

It doesn’t matter if your kids are toddlers or teens, how you’ll pay for their college likely weighs heavily on you. And, conventional wisdom says you shouldn’t jeopardize your retirement income to help pay for your kids’ degrees.

So what can you do?

When it comes to saving and paying for college, there are two rules, according to Chris Stack, managing consultant at savingforcollege.com.

  • Don’t panic
  • Be patient

Remember, slow and steady wins the race. Whatever you can put away now to pay for college costs in the coming years will help. It may not seem that way when you consider the cost. For example, four years at a private university just topped $169,000, according to the College Board. But, getting scared by the numbers isn’t the answer.

Chris Stack and other college savings experts recommend these four strategies.

1.  Avoid loans as much as possible

The $1 trillion in outstanding student and parent education debt exceeds all Americans’ outstanding credit card balances combined. And the average student loan balance is over $25,000, according to the 2014 fourth quarter report on household debt and credit from the Federal Reserve Bank of New York.


“No one wants a child to graduate college and start out in life behind a mountain of debt,” says Stack. The solution, he says, is being prepared for, and realistic about, college costs. Otherwise, you risk taking on debt that could jeopardize not only your children’s futures but yours as well.

2.  Save. Lots. Now.

If you aren’t already, start putting away as much as you can for tuition costs. Even if your child is already a tween or teenager, it’s not too late. Painful as it can be to save large sums, it will cost you less in the long run than borrowing, says Stack.


3.  Save with tax-smart accounts

You can make your savings go further by taking advantage of tax breaks on tuition savings with options such as 529 accounts and Coverdell Education Savings Accounts (CESAs).

CESAs, formerly known as education IRAs, are another option. Similar to 529s, earnings grow tax-free and qualified withdrawals are exempt from federal tax, and many times from state tax, too. CESAs are often attractive because you can use funds for private school tuition for grades K through 12 as well as for college. Income restrictions apply and contributions are limited to $2,000 a year, so many parents use these accounts in tandem with a 529.

Nearly every state offers at least one 529 account. Earnings grow tax-deferred and withdrawals are free from federal income tax if you use them for qualified education expenses. Many states also offer tax incentives, including tax deductions for contributions and tax-exempt withdrawals. For more information and rankings on 529s, go to savingforcollege.com.

4. Be realistic about financial aid

It’s easy to think that your child can rely on financial aid to cover any shortfall you may have. But, the problem is, the majority of student aid these days is loans. So, when you’re counting on financial aid, you’re really relying on borrowing for education costs — not scholarships and grants, which are harder to obtain.

Many parents also worry that a big college fund will decrease the family’s chance for financial aid. But, for the most part, it’s better to prepare for giant costs like tuition than to count on something you can’t be sure of.

That said, you can help your family’s chances of qualifying for financial aid if you save in the right types of accounts. When the federal financial aid formula assesses how much a family should contribute to college costs, it looks at what both the parent and child have saved for education costs and evaluates those amounts differently. Money saved in the child’s name is assessed at a 20 percent rate, whereas money saved in the parent’s name, which often is the case for 529 and Coverdell accounts, is assessed at a much lower rate of up to 5.6 percent. So, every $10,000 saved in your child’s name would be seen as a $2,000 contribution to college costs. That same $10,000 saved in your name would be viewed as only a $560 contribution.

Talk with your advisor about college savings and what makes sense for you.

Editor’s Notes:  We thank Joanne S. Reilly, CFP®, APMA®, CDFATM  Financial Advisor, Joanne Reilly and Associates – a financial advisory practice of Ameriprise Financial Services, Inc. and an Ameriprise Platinum Financial Services®practice.  Visit Reilly on her website at Joanne Reilly and Associates, on Facebook and on Linkedin.

Financial adviser Joanne Reilly, CFP ® , CDFA™, APMA ® (Joanne Reilly and Associates) is a Certified Financial Planner with more than 30+ years of successful experience helping her clients to build exciting futures as well as weather unexpected circumstances. In addition to holding the CFP designation, she also holds the CDFA (Certified Divorce Financial Analyst designation) as well as the APMA (Accredited Portfolio Management Advisor) designation.

Joanne, affiliated with Ameriprise and based in Boston, MA, is licensed to practice in multiple states throughout the country (N, S, E, W, as well as the mid-section). A graduate of Smith College, her previous positions included Bank of America (Senior Vice President, Investments and Insurance).

As an After-Fiftier, she loves Boston – but also enjoys travel, time with friends and family, tennis, music and the fine arts. She also makes time for an important priority in her life: The Haven Project. The Haven Project is a growing non-profit organization assisting the needs of homeless young adults on the north shore of Boston. Their mission? EQUIP and EMPOWER the growing population of unaccompanied and at-risk young adults ages 17-24 in the geographical area with the skills and support they need to achieve their life’s purpose.

Visit Joanne on her website at Joanne Reilly and Associates, on Facebook and on Linkedin.

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