Financing a College Education

Parents can feel lonely when trying to finance their children's college educations. But, unfortunately, college tuition and fees are not falling. According to CollegeBoard.org, over the last 30 years (1991-92 and 2021-22), in-state tuition and fees at public four-year institutions increased by $6,580 and $18,710 for private four-year universities.

However, parents need to know that paying for their children's higher education does not have to be a solitary affair. Parents have several tools that they can rely on to help cover these costs.

Parents can rely on, at least partly, their savings. Alternatively, they can help their children receive grants or scholarships. Finally, though they require repayment, student loans can help ease the financial burden of paying for a college education.

Here, then, is a summary of the tools that can help overwhelmed parents.

Savings

The best way for parents to help pay for their children's college education is to rely on their savings. For many parents, though, this is unrealistic. Typically, they don't have enough savings built up to cover the escalating cost of a college education.

However, parents can significantly reduce the stress of funding a college education by socking away money early. It is relatively easy for most parents to put away $50 to $100 a month. However, parents who start saving early -- long before their children hit high school -- will find a significant nest egg available when it is time for their sons and daughters to go to college.

Parents, though, need to be careful. It is good to help pay for their children's higher education. However, it is not suitable for them to shortchange their retirement years. Unfortunately, too many parents funnel too much of their cash toward building college funds for their children. That can leave them without enough money for their retirement years. Parents who have to decide between saving for their children's college education and providing for their retirement years need to take care of themselves first.

Grants and Scholarships

Grants and scholarships can be a big help to parents struggling to save for their children's college education. These sources of funds are especially welcome because students do not have to pay them back. It is why many financial experts advise parents and future college students to seek out grants and scholarships before they worry about applying for student loans: Grants and scholarships, after all, represent free money.

In general, grants go to students based on financial need. Scholarships typically go to students based on merit. For example, students might earn scholarships because they earned straight-As in high school. In addition, their achievements on the football field, debate team, or science club might help them earn scholarships.

Scholarships and grants are available from several sources, from colleges to corporations, the federal government, state governments, and charitable organizations.

For instance, many organizations offer scholarships based on students' essay-writing skills. For example, the John F. Kennedy Profile in Courage Essay Contest provides up to $10,000 to high school students who submit essays about elected officials who have demonstrated political courage.

The Coca-Cola Scholars Foundation provides 150 $20,000 scholarships, 150 scholarships ranging from $1,000 to $1,500, and 180 four-year scholarships of $1,000 to students who display leadership and excellence. In addition, Davidson Fellows Scholarship provides $50,000, $25,000, and $10,000 to students under 18 who have completed a significant piece of work in the field of science, literature, music, technology, philosophy, or math.

Student Loans

Student loans are often the last resort for parents. That is understandable: Every day, we hear horror stories of college students graduating with tens of thousands of dollars worth of student loan debt.

The truth is, though, that student loans come with terms and interest rates that are far more favorable than you would find with any other type of consumer loan.

Student loans come in two forms: federal loans, based partly on financial need, while private loans are available to all students regardless of need. Federal need-based student loans come with the lowest interest rates and best terms. On the other hand, the interest rates associated with private students loans can soar relatively high.

These loans work much like other consumer loans: The loans help students pay for anything from college tuition to room-and-board, supplies, books, and meals. They do not have to pay back these loans until a set number of months after graduating from college. Once the loan comes due, graduates must pay back the money they borrowed in monthly installments, including interest. Graduates can often delay repayment depending on their financial situations and whether they have found a job.

To determine how much federal loans their children can receive, parents must first fill out the Free Application for Federal Student Aid form, better known as FAFSA. Parents can find this form online. Once parents fill out this form, they become eligible for aid from the U.S. federal government, including assistance available from the Stafford Loan, PLUS Loan, Perkins Loan, and Pell Grant programs.

Parents might also discover that their children are eligible for the Federal Work-Study program. Based on students' financial needs, this program provides part-time jobs to students to help them cover the cost of attending college. In addition, students who do not qualify for federal work-study might be eligible for private work-study programs.

No one said that financing your child's college education would be an easy task for parents. As long as college tuition and fees continue to rise, helping to fund a college education will remain a financial struggle for many parents. However, parents should take comfort in that so many opportunities for financial help are available to them.

The key is to start planning early. Those parents who start saving early for their children's college education and who start researching financial aid opportunities at the start of the college selection process will be in the best shape once college beckons.