Paying for College When You Don’t Qualify for Aid
Paying for college is a challenge. While this statement is probably not news to anyone, we sometimes overlook the extent to which this challenge affects all income groups. Whether rich, poor, or somewhere in between, most people spend most of what they earn. Few of us can write an annual check for $70,000 without breaking a sweat (or, perhaps, suffering a complete panic attack). As a College Coach college finance expert, I work with families of all income levels struggling with the prospect of paying for college. While students from lower income households often qualify for
need-based financial aid, the
assistance options for higher income families are more limited. But that doesn’t mean they are nonexistent. Families can employ a number of strategies and utilize a wide range of resources to help pay for college when they don’t qualify for financial aid.
Strategies to Help Pay for College
- Saving: Saving is perhaps an obvious strategy for tackling that college bill, but, according to a recent Sallie Mae study, only about half of all parents of children under age 18 are saving for their kids’ educations. Higher income families may be positioned particularly well to save good sums of money for college, but even small amounts saved consistently can put a big dent in that college bill, particularly if you utilize a 529 Savings Plan, where earnings of the account grow tax-free as long as withdrawals are made for qualified education expenses. Some states even offer state tax incentives for contributing to a 529 Plan, reducing a family’s income tax burden and freeing up more money to pay for college.
- Scholarships: Even if you can afford to pay full price for college (by your own estimation, or simply by the colleges’ calculation, with which you may wholeheartedly disagree), who wouldn’t like to get a discount? With the exception of the most highly selective colleges, recruitment aid, such as academic and/or athletic scholarships, is available. At the vast majority of colleges, this type of aid is generally awarded without regard to a family’s ability to pay (i.e. is available to rich and poor students alike). Identifying schools where your child is well above average academically, or where she stands out in some other way from that college’s typical student, is the best strategy for maximizing scholarship offers. You can also pursue private scholarships found within your local community or online at websites such as www.scholarships.com.
- Payment Plans: By default, most colleges will bill you twice a year—once for the fall semester and once for the spring semester. Coming up with a full semester’s payment all at once can be difficult, even for families with relatively high incomes. If you can afford to devote a fraction of your monthly disposable income toward college tuition, you should consider enrolling in the college’s monthly payment plan. Most colleges offer such a plan to students, allowing them to stretch payments out over the course of 10 months or a year. There is usually a small service fee to sign up (maybe $50), but this fee is minimal compared to interest payments on a loan (or interest you may be accruing on your assets), so if a payment plan helps a family avoid borrowing (or liquidating high-return assets), it is well worth considering.
- Loans: And speaking of loans, they are utilized by families at all income levels to help pay for college. Even parents who could afford to pay for college out-of-pocket will sometimes choose to make student loans part of their college payment strategy in order to avoid asset liquidation or to give their child some responsibility for his or her own education. Some parents even agree to pay off their child’s loans for them should the student maintain a certain grade point average, graduate on time, etc. When borrowing, be sure to carefully consider all loan terms, as well as relevant gift tax implications for paying off a child’s loans.
- Tax Breaks: Finally, families who do not qualify for financial aid may still access government assistance through education tax breaks. Though not available to the wealthiest parents, the American Opportunity Tax Credit can be claimed by parents making up to $180,000 annually and paying the college tuition of their undergraduate child. Higher income families may be able to structure their finances in a way that allows their child to claim this credit for themselves. Also, as previously mentioned, families at all income levels can take advantage of tax-free asset accumulation by investing in a 529 College Savings Plan.
Which Strategy Should I Choose?
While a high income is certainly a resource that is helpful in managing college costs, income alone doesn’t always ease the burden of college payments–even relatively well-off families are often challenged. Higher income families, while precluded from accessing need-based financial assistance, are not without options for paying that college bill. All families—rich or poor—should explore the above resources when developing a college payment plan. A little strategic thinking can go a long way toward maximizing financial resources and minimizing college payment stress, no matter what your income level.
