Financing Your Child’s Education

By: Stacy Abbott, USU Extension Home Buyer Education Program Coordinator

July 15th, 2022

Regardless of where you find yourself in preparing for a child’s college expenses, there are some basic questions to ask yourself: 
1) What can I contribute?
2) What resources are available?
3) How can my child prepare for college expenses? 

What can I contribute?
Some households feel they don’t have the financial capability to pay for college expenses for their children. This may be especially true if there are multiple children in your family or if you live on a limited income. Keep in mind that tuition is only a portion of college expenses. Other expenses include textbooks, housing, food, and transportation. Perhaps you can’t provide tuition assistance but could provide housing, buy textbooks or continue to pay for car insurance. 

If you are interested in saving money for your child’s education but are unsure of how to fit it into your budget, you can find money to save by tracking your expenses and identifying areas that you may be overspending. For example: If you eat out or purchase a drink or treat multiple days a week, you could change how often you do that and place the money that you would have spent on these items into a savings account designated for educational expenses. 

Making your savings automatic is another tactic. Have your employer directly deposit money from your paycheck into an account for educational expenses. This will maintain consistency in your saving and takes away the temptation of spending the money before it makes it to savings.

Small changes will add up over time. Saving $75 a month will add up to $900 per year and $11,700 after 13 years. With a good interest rate and time on your side, your contributions can develop into a substantial nest egg and not to mention a fabulous graduation gift! 

Accounts that offer a competitive interest rate include Educational Savings Plan (529 or Coverdell), Roth IRAs, Mutual Funds and Money Market accounts. As you are making your choice, remember to compare fees, rate of return and tax incentives for saving and withdrawal limitations.

What resources are available?
Federal Financial Aid is available to college students in the form of Pell Grants, Federal Student Loans and Work Study. These are awarded according to the financial need of the student. Factors considered in the calculation include the cost of attendance, income, assets and household size.  Some assets are considered exempt; these include home equity, life insurance policies, income from a small business with less than 100 employees, and family farm income.  

Visit  www.fafsa.org to file your File your Free Application for Federal Student Aid (FAFSA).  This can be done as soon as January 1st but not before you have filed your most recent tax return. Applicants are encouraged to apply early.

Once your child is in college, take advantage of federal tax credits for education such as the Lifetime Learning Credit and the American Opportunity Tax Credit. See www.irs.gov for more information on education credits.

How can my child prepare for college expenses?
Encourage your child to prepare for future college expenses by saving a portion of the money they earn through a part time job. They should also maintain good grades and apply for scholarships from universities, private companies and club organizations. Encourage your child to apply for several scholarships. Sometimes scholarships go unused because no one applies for them. Applying for the scholarship, opens the door to the possibility of having a scholarship.

High school students can take advantage of concurrent enrollment and AP courses which may satisfy general education requirements at universities for a reduced rate. 

In addition, Utah Applied Technology Colleges, offer tuition waivers to high school students. Courses at these colleges teach students marketable skills and often provide certifications that can be used to gain employment. Credits earned may also transfer to other educational institutions. For more information visit: http://www.ucats.org 

Talk to your child about their career goals and help them evaluate what type of institution will help them reach their goals. Can these goals be met at an in-state institution? In-state tuition is often less expensive than out-of-state tuition. Can general education credits be earned at a junior college or lower cost university? General education credits can often be transferred to another institution. 

Words of Caution:
Applying for financial aid is a free service so beware of anyone who tries to charge you for this service. Visit https://studentaid.gov/ for additional information about federal financial aid.

If you must borrow money for college expenses consider Federal Student Loans which are available to students and their parents. Repayment options are more flexible than loans through private companies.

Student loans cannot be discharged in bankruptcy regardless of whether they are private or federal.

Borrowing from your home equity for college expenses may be tempting, but keep in mind that this will add an additional payment to your mortgage and put your house at risk if you are unable to make payments.

Borrowing against your 401k may incur penalties and additional taxation not to mention stunt the growth of the account.

Additional Resources:
Pennsylvania Higher Education Assistance Authority. (2011).  Why Save For Your Childs Future? Retrieved from http://www.educationplanner.org/parents/why-save.shtml

Flynn, Kathryn. (2022 March 25). Which is Best: 529 College Savings or Roth IRA. Retrieved from http://www.savingforcollege.com/articles/which-is-best-529-college-savings-plan-or-roth-ira-710

Internal Revenue Service. (2021  December 29). Education Credits AOTC & LLC. http://www.irs.gov/Individuals/Education-Credits-AOTC-LLC