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The Best Ways to Pay for Your Child's College Education

College is one investment that pays off. It’s estimated that college graduates earn $1 million more than non-graduates throughout their work lives.

At the same time, college is expensive. Here’s the average cost of tuition and fees in the 2019 — 2020 school year, as reported in the U.S. News annual survey

For private colleges: $41,426 

For public colleges: 

  • In-state residents: $11,260 
  • Out-of-state residents: $27,120 

Those costs don’t cover room and board. Also, consider that tuition tends to rise every year, with increases between four and 10%. Depending on your child’s age, you may be looking at a cost that’s considerably higher than what parents face today. 

Given everything that’s at stake — your child’s future and your financial stability — it makes sense to understand all of your options to pay for college. 

529 Plans 


529 plans, or “qualified tuition plans,” are savings plans sponsored by states, state agencies, and educational institutions. These plans offer tax-advantaged savings for educational expenses and come in two categories:

  • Prepaid tuition plans. These plans enable you to purchase credits at public colleges and universities at current prices. The money can only be used for tuition and fees, not room and board, and most have state residency requirements. You receive the full value of the benefit only if your child attends the participating institution. Otherwise, you will only receive a portion of the benefits you paid. 
  • Education savings plans. These plans can generally be used to cover expenses at any college or university, including some foreign institutions. These savings can also be applied to room and board. Also, under the revised 2017 tax code, education savings plans can be used for private elementary and high school tuition for up to $10,000. 
  • Private plans. This is a prepaid tuition plan for approximately 300 participating private colleges and universities. 

529 plans offer a range of tax benefits. The compound savings are tax-free, and some states offer tax deductions and matching contribution incentives. However, some fees may apply to 529 plans, such as account applications and maintenance fees. 

The College Savings Plan Network provides links to all state 529 plans.



The federal government, state governments, and colleges and universities provide grants based on financial need. Unlike loans, grants don’t have to be repaid. 

To qualify for a grant, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA) form. Colleges and universities also use this information to determine what need-based aid your child may be eligible for, including institutional scholarships.



Families turn to loans to finance approximately 20% of the cost of college. Educational loans are available from the government and from private lenders. Federal loans include more protection and better rates, so consider those first. Again, you’ll need to fill out the FAFSA to qualify. 

Students can take out federal loans, with first-year undergraduates able to borrow up to $5,500 and an additional $1,000 for every subsequent year. Direct PLUS loans are targeted to parents. While these loans come with a higher interest rate than student loans, the amount you can borrow is determined by the college and is intended to cover the full cost of attendance, minus any scholarships your child may be offered.

$2,500 Tax Credit 


The American Opportunity Tax Credit is a benefit for parents whose adjusted gross income is less than $90,000, or $180,000 if filing jointly. You can reduce your taxes after paying tuition, fees, books, room, and board by up to $2,500 a year per child.

Other Options


You may want to consider other savings and funding options, including:

  • Roth IRAs 
  • Traditional IRAs 
  • FDIC-insured savings accounts 
  • A home equity line of credit 

Whatever option, or combination of options, you choose, it’s best to start as early as possible. And know that you’ll seldom pay the college’s advertised “sticker price.” According to the College Board, undergraduate students in 2018-19 received an average of $15,210 in aid. 

To maximize your savings and ensure you’ve got the best possible plan in place, consider working with a financial advisor who specializes in long-term planning. Your child’s future is worth it.


This content and information was created by a third party and not The College. The College assumes no legal liability for the accuracy, completeness, or usefulness of any such content and information and the views expressed therein do not necessarily represent the views of The College.

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