Finding out that your son or daughter wants to go to college is a proud moment in the life of any parent. After the initial excitement, however, comes the question of, “how am I going to pay for all this?”. Don’t let the slap of reality get you down, there are plenty of ways to get your child’s education paid for. We’ll discuss a few of them here.
Scholarships are a parent’s favorite way to have college paid for. Not only are scholarships free money, but they are also an indicator that their child has excelled in a particular subject (or subjects) and drawn the attention of the scholarship sponsors. Many scholarships are also renewable, so you can take advantage of them every year the student is in school. When applying for scholarships, try to apply to as many as seem relevant. Check with not only the high school guidance counselor but with the financial aid office at the college to which they will be applying. Never pay money to any service that advertises guaranteed acceptance or even listings of scholarships. These are scam companies that are only seeking to gain your personal info and either sell it or use it for nefarious purposes.
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Grants are another popular way of acquiring funding for college because, again, the money is free and does not need to be paid back. The difference between a scholarship and a grant, however, is that scholarships are awarded based on merit whereas grants are based on financial need. So, if you, as parents, have an income over a certain threshold, it is unlikely your child will qualify for a grant. Grants usually come from either the school itself or from government agencies. These agencies can be at the state or federal level so research as much as possible so you do not lose out on any opportunity.
Private Student Loans
A private student loan is exactly that, a private loan. While the student could technically take out a loan in their own name and start to build credit, it is likely that you as a parent will have a higher credit rating that a lender is looking for in order to issue a low rate. This is where a parent co-signing the loan will come into play. By being a co-signer on the loan from Earnest.com, you are signing a guarantee to the bank that if the student defaults on the loan, you will be held responsible for paying it back. This can be positive for each party involved.
The bank has a guarantee of repayment based on your solid credit, you have the satisfaction of knowing your child will be able to attend college, and your child will be able to build their credit early in life through repaying the loan. Private student loans generally do not have to start being repaid until approximately six months after the student has graduated. Interest may accrue when the student is still in school. It may be wise to make at least the interest payments during the time the student is in school because these payments can be deducted from your taxes.
Every college will offer work-study programs, though the number and type of jobs offered may be limited. Essentially the program works as the college offers students a part-time job for which they will be paid. The jobs are typically either community service based or somehow in relation to the degree the student is pursuing, although this may not always be the case. A benefit of work-study is that the money earned does not count against any other financial aid they have received. Students will have to meet specific requirements to qualify, but it is always a good idea to fill out the application. One hint is to fill out the application as early as possible as this type of aid tends to exhaust very quickly. Work-study is available at both the undergraduate and graduate level.
While this isn’t technically paying for college, the Internal Revenue Service does offer certain tax credits based on college tuition payments. Parents earning under a certain amount of income will be able to get a 100% tax credit on the first $2000 of tuition paid and a 25% tax credit on the following $2000. As of writing, a portion of the tax credit is refundable, so if you owe nothing on your income tax that year, you will receive a percentage as real money back.
Employer Tuition Reimbursement
There are some major employers who offer their employees tuition reimbursement. Many of these employers offer this benefit to part-time employees as well so it is a good idea to have the student work at one of these places to take full advantage of these benefits. Keep in mind that some employers may offer tuition reimbursement in relation to certain majors or degrees so make sure to read the fine print before making any sort of commitment. Another thing to keep in mind is that the tuition reimbursement may only be available if they attend certain universities, so again, make sure to read the paperwork before signing anything.
Match Their Contribution
Having your child help pay their way through college is a great way to teach them not only financial responsibility but also the value of a dollar. One interesting and beneficial way that some parents do this is to match whatever amount the child pays for their own schooling. This encourages them to pay for as much of their tuition as possible, but it also alleviates the stress and discouragement they may feel from trying to come up with the entire amount by themselves.
Hire Your Child
If you are self-employed, you can always hire your child as a part-time (or full-time) employee and set up a tuition reimbursement program that way. This is essentially paying for the education yourself but being able to deduct the tuition paid as a business expense at the same time. Speak with your accountant to settle the finer points on this college payment method.