For most parents, the first thing that comes to mind when thinking about their child’s future college education is, unfortunately, not graduation day. It’s the cost. 

College tuition has become the second biggest expense a person will make in their lives—with a home purchase being the first. So how are parents supposed to keep up, and is taking out college loans the only way?

If you’re worried about how you’ll be able to handle the gargantuan costs of college tuition for your child, just know that you have options and the best way to pay for college isn’t always loans. 

In this article, we’re going to highlight 8 alternative ways to cover your costs so you can focus less on money matters and more on your little achiever. 

#1 529 Plans

One of the most popular ways parents can save for college is by getting a 529 Plan. This investment funding account offers a wealth of tax advantages and is designed specifically for education-related expenses, like room and board, books and supplies, and tuition and fees. Unlike a regular savings account, 529 plans provide tax-free growth and withdrawals are also tax-free.

529 plans come in two varieties: a prepaid tuition plan and an education savings plan. A prepaid tuition plan is exactly what it sounds like. It’s a 529 plan that allows you to prepay for your child’s future education at today’s rate. The benefit of this option is that if school costs rise, you get to lock in today’s college costs by paying now.

An education savings plan, on the other hand, puts your contributions in investments funds, which may start off risky, but become more stable investments as your child gets closer to their first year of college. 

#2 Scholarships

Scholarships are an excellent way to help pay for college, and there are thousands out there. There’s a scholarship for virtually every type of student—from single moms and minority students to high schoolers and more. 

Unlike student loans, you don’t pay back scholarships. While many are awarded for athletic or academic achievement, there are a huge variety of scholarships for all kinds of hobbies and interests. For example, if your child develops a passion for the culinary arts, they may be eligible for the AAC Culinary Scholarship which can help fund their post-secondary education.

In short, scholarships are free money for college, you just have to search for the right one for your child.

 

#3 Grants

Speaking of free money, grants also provide a means for paying for college and, same as scholarships, you don’t have to pay them back. Where scholarships and grants differ is that grants are typically need-based, which means they are awarded based on financial need.

Low-income families can see what grants they qualify for by filling out a FAFSA. The Pell Grant is the largest grant for college and is offered by the Department of Education.  

The Federal Supplemental Educational Opportunity Grant (FSEOG) is another federal grant for low-income undergraduates. It’s typically awarded to students who qualify for the Pell Grant.

 

#4 FAFSA

We mentioned FAFSA in the previous section, but what is it exactly?  

FAFSA stands for Free Application for Federal Student Aid. It’s a form every student should fill out, regardless of income level, and is used to grant financial aid. Doing so will give qualifying students access to scholarships, grants, federal student loans and work-study programs. 

Federal work-study programs offer students part-time jobs while they’re enrolled in college and is administered by schools who participate in the program. These jobs are often related to the student’s course of study or community service work.

This should be every student’s first step when considering their financial aid options for college. It’s free, anyone can fill out the form, and it takes less than 30 minutes to complete. 

The FAFSA can be submitted every year a student is in college if they want to continue receiving financial aid. 

 

#5 Attend a Community College

Community colleges are known for their lower tuition costs. Instead of spending thousands for a four-year college education, students can save money by attending a community college for the first two years and then transferring to a four-year college with an Associate of Arts (A.A.). This includes general education courses all schools require, like English, history, and sociology.

Students who attend community college can still apply for financial aid and scholarships which would further decrease their tuition costs. There are federal loans and grants meant for those attending community college, such as the Perkins loan and the Stafford Loan. These loans require the student be enrolled at least half-time and complete a FAFSA form.

 

#6 Work-Study Programs

As mentioned in #4, work-study programs are federally funded programs that offer low-income college students part-time jobs—typically in the field they’re studying. Students can see if they’re eligible by filling out a FAFSA form.  

If a student is eligible for a work-study program, there’s still no guarantee they’ll get a job. Additionally, they’ll be responsible for securing their work-study job—it won’t be handed to them. While some schools help match a student with a job, most will require a student to go out and find one on their own. 

Unlike financial aid which is applied directly towards tuition, funds from a work-study program are normally received as a paycheck, just like a regular job. They’re also meant for smaller expenses like books and commute rather than tuition. 

According to the Department of Education, over 3,000 universities and colleges offer a work-study program. So students will need to check with their financial aid department to see if their school participates.

 

#7 Coverdell ESA

Similar to a 529 plan, a Coverdell Education Savings Account (ESA) is another popular way parents can invest in their child’s future by getting a head-start and saving today.

A Coverdell ESA is a type of savings account a parent can make in their child’s name which accepts up to $2,000 per year of after-tax contributions and tax-free withdrawals as long as it’s for education-related expenses. 

The main difference between this type of education investment account and a 529 plan is how the money is invested. ESAs are flexible and allow much more variety when it comes to investment options unlike a 529 plan, which limits you the investments offered by the state’s plan. 

Another difference is that the money in a Coverdell ESA must either be transferred to another family member or given to the child by their 30th birthday. With a 529 plan, the funds will always belong to the donor and not the beneficiary.

 

#8 Student Loans

Once you’ve exhausted all your financial aid options, the last stop to help pay for college is student loans.

Similar to other loan types, a student loan is money borrowed that must be repaid with interest. While they’re typically provided by the Department of Education’s Federal Direct Loan program after filing the FAFSA form, they can also be acquired from banks, credit unions, and other private lenders. 

Where they differ from other loan types is when they must be repaid. It’s only once the student graduates that they must start repaying their loan, and typically after a six month grace period.

Student loans can be a lifesaver when it comes to making higher education attainable for low-income students. Taking on some debt can also be an excellent opportunity to build up their credit history, as long as they make their payments on time.

With that said, it’s important for students and families to understand the risks involved with taking out a loan and carrying debt. If the loan isn’t paid back, it’ll be considered delinquent which can result in late fees and a hit to their credit score.

Another point to consider is that student loans can be expensive. While the interest on the loan may not seem like a large amount (especially to new borrowers), it adds up quickly and can significantly increase the student loan amount.

 

Final Thoughts

While rising tuition costs may make you feel uneasy, the good news is that there are a bounty of ways to pay for college. From financial aid, work-study programs, college savings plans to student loans, there’s no reason for a student from any financial background to be held back.

Options like financial aid and student loans will get you the funding you need in a pinch, but there’s nothing like getting started early in investing in your child’s education.

Start today with a 529 plan from UNest by downloading their easy-to-use app.

Ksenia Yudina, CFA, MBA

Founder and CEO

Ksenia is the Founder and CEO of U-Nest, the first mobile app that makes it easy for families to save for college. As an entrepreneur and finance professional, Ksenia has focused on alleviating the impact of student debt on families across the economic spectrum. Previously, Ksenia was a Vice President atCapital Group/American Funds, the largest 529 provider in the U.S. In this role, she played a leadership role in helping parents plan and manage their finances, with a focus on the future well-being of their children. Prior to Capital Group/American Funds, she was founder of a residential real estate company. Ksenia earned her bachelor’s degree in finance from CaliforniaState University Northridge, and an MBA from UCLA’s Anderson School of Management.

Mike Van Kempen

Chief Operating Officer

Mike joined U-Nest in September 2019 as COO. He was previously at Acorns, a financial wellness platform, where he spearheaded the analytics and growth initiatives. Mike successfully expandedAcorns’ paid acquisition strategy, adding over 4.5 million investment accounts. Mike began his career in strategy & analytics at Belly, a Chicago-based loyalty startup in 2012. At Belly, Mike led projects that fueled growth across all aspects of the business, growing the customer base from1,000 to over 11,000 merchants, and accumulating a membership of over 2 million customers.Mike holds a B.B.A. in Finance from Loyola University of Chicago.

Steve Buchanan

Chief Technology Officer

Steve has over 20 years of experience in delivering digital innovations in the financial sector. Steve previously orchestrated product architecture and innovation as a Solutions Architect/ Fintech consultant at Union Bank. Prior to Union Bank, he was Chief Architect and Director of Engineering at Calypso, a Silicon Valley startup, where he architected and built multiple financial solutions. He was also Head of Global Integrations at Globe One in Vietnam where he integrated its Peer-to-Peer lending products into core banking solutions. Steve also built the first ever electronic Equities &Equity Options trading systems for Scottish stock brokers Wood Mackenzie (acquired by CountyNatWest). He is a graduate of Edinburgh University.

Peter Mansfield

Chief Marketing Officer

Peter has built an impressive track record in multiple financial industry segments including payments, credit/prepaid cards and lending. He has played an instrumental role at a succession of financial industry leaders, co-founding companies such as Brand3 (acquired by American Express) and PropertyBridge (acquired by Moneygram), and, as the early stage marketing lead at Marqeta (where he was team member number two), BillFloat and WallabyFinancial (acquired by Bankrate).He has helped fast-growth companies reach an aggregate market value of close to $8 billion. Peter holds a bachelor’s degree in economics from the University of Angila, UK.

Sonya Kidman

Client Relationship Manager

Sonya Kidman is a Customer Success professional with a decade of experience in advocating for consumer through user research and genuine empathy. Sonya specializes in user behavior and regularly attends national and global training sessions in wellness and people analytics tools. Sonya is a true global citizen was born in Russia, grew up in Israel, lived and worked in Canada and NewZealand. That global expertise along with an undergraduate degree in Sociology from Tel AvivUniversity have helped to shape a bullet-prof Sonya's framework to develop a winning customer strategy.

Frank Mastrangelo

Board Member

One part banker and one part technologist, Frank spent his early days with the Annenberg Foundation and PNC Bank. His career path led him to Jefferson Bank, where he led the build-out of its electronic banking platforms, and where he would forge a powerful alliance with The Bancorp co-founder Betsy Z. Cohen. As President and COO of The Bancorp from its inception in 1999 Frank played a critical role in helping the organization become an industry bellwether for branchless financial services and a global leader in payments. For this, he has become a widely respected fintech expert, and thought-leader. Frank was recognized in 2013 by Banking Innovation, a leading industry journal, as an “Innovator to Watch.” and as one of the innovators shaping the future of banking. Frank is a graduate of West Chester University of Pennsylvania.

Disclosure

College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the collegeboard.org. Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.