The sticker price of Columbia University is at a whopping $93,000 per year. Of course, that’s the most expensive school in the country, but the average cost of college is still nearly $40,000 per year per student and that’s still a huge financial burden. Scholarships are fantastic, but they’re not guaranteed, and even federal aid won’t always cover 100%, so how do you cover the rest while avoiding student loans like the plague?
Redirecting you family’s existing cash flow.
The Three Ways to Pay for College
To fund higher ed, families draw from three main “money buckets”:
- Savings: This includes 529 plans, mutual funds, stocks, and bonds specifically set aside for education.
- Loans: Both parent and student loans, which ideally you want to minimize.
- Cash Flow: This is the money you’re already spending regularly that can be redirected.
Many families primarily focus on their college savings and lean on loans to fund the cost of college without tapping into cash flow to reduce their reliance on loans.
The Power of Redirected Spending
Think about how much you currently spend on your teenager each month. Is it $400? $500? Probably more, right? This money, which goes towards things like sports, gas, new clothes, school supplies, and entertainment, can actually be part of your college funding strategy.
Let’s illustrate with an example:
Imagine you have:
- $25,000 in a 529 savings plan.
- $3,000 in other invested assets.
- Your child plans to earn about $200/month from a part-time job, totaling $9,600 over four years.
- They’re eligible for the maximum $27,000 in Federal Direct Student Loans over four years.
- Grandparents plan to gift $5,000 over their college career.
Adding these up, you have $69,600 available for school funding. Now, consider if you’re already spending an average of $400 a month on your child. Over four years, that’s an additional $19,200! By consciously redirecting these existing expenses, you’ve essentially freed up nearly $20,000 that can go directly towards college costs, significantly lowering the amount you might need to borrow.
Key Tips for Families to Optimize College Funding
Here are some actionable tips to help you maximize your resources and minimize stress when paying for college:
- Re-evaluate Current Spending: Identify regular expenses related to your child that can be redirected once they’re at college. This “found” money can be a game-changer.
- Utilize College Payment Plans: Many colleges offer 0% interest monthly payment plans. Instead of a large lump sum, you can use your freed-up monthly cash flow to pay as you go, reducing the need for loans.
- Explore Tax Credits: Don’t forget about potential tax benefits like the American Opportunity Tax Credit, which can provide direct savings or increase your cash flow for college expenses.
- Know Before You Go: Before even touring colleges, sit down with your family to establish a clear college budget. Understand all your available resources like
- Student resources (savings, UTMA, job earnings)
- Parent resources (529 savings, other assets, and cash flow)
- Parent loans (hopefully zero!)
- Student loans
- And other sources (maybe grandma or grandpa?)
Remember, smart pre-planning is at the heart of a successful college funding strategy. We’re here to help you navigate these important decisions, so schedule time with us if you ever have any questions.
In the meantime, if you want to learn more about what schools will expect you to pay? Sign up for our free College Money Report™. It’ll give you the full picture so you can see what resources you have to spend on college, what your top schools will cost, and what financial aid might be available to your student, all in one convenient place.
