Paying for college can be tricky, especially when the cost of a college education is far outstripping the rate of inflation.
About two-thirds of today's college students take out student loans of some sort, and their average student loan debt load at graduation is over $23,000, according to FinAid.org.
These college loans can include government-issued federal student loans, federal parent loans, and non-federal private student loans offered by banks, credit unions, and other private student loan lenders.
There are ways, however, to minimize the amount of borrowing required to get a student through college. As a parent, one of the best ways to help your college-bound child avoid student loan debt is to save for college expenses over the long haul.
Financial planners advise new parents to start college savings accounts immediately after your child is born and to contribute a minimum of $75-$100 to the savings plan each month. That rate of savings will likely support in-state resident costs for a four-year degree at a public university. If you have your hearts set on sending Junior to the Ivy League, on the other hand, your monthly savings rate will need to be substantially higher.
Long-term savers have the benefit of time, which can generate options when it comes to paying for college. For families who haven't saved for college or whose college savings aren't enough, there are still a few more ways to help lessen the burden of paying for college without relying too heavily on school loans.
1) 529 College Savings Plans
It's never too late to start saving for college. This is especially true with 529 plans. These tax-friendly college savings plans are available in most states. There's no requirement that you invest in your own state's savings plan, but you could reap additional tax benefits by choosing to keep your money at home.
When you open a 529 plan, you must name a living beneficiary (you can name yourself), and you can switch beneficiaries whenever you like. You fill the account with post-tax contributions. If you follow the plan rules, which include using the proceeds only for qualified higher education expenses, you won't pay taxes on the gains when you use the funds. Additionally, relatives and friends can contribute to your 529 account, or they can open their own account for the same beneficiary.
2) Education Tax Benefits
The federal government extends tax benefits to college students and families who have students in college. The American Opportunity Credit offers a tax credit of up to $2,500 per student per year.
If you've already graduated from college and you're in repayment on your student loans, you can deduct a portion of your student loan interest if you meet certain income guidelines. Deductions are also available for un-reimbursed educational expenses that are required by your job.
To determine which tax benefits may be available for you or your family, consult with a tax advisor or visit the IRS website at http://www.irs.gov to download a copy of Publication 970: Tax Benefits for Education.
3) Scholarships & Grants
Whether you're already in college or still in high school, you should dedicate some time each month to search for college scholarships and grants. There are several online scholarship search engines that allow you to search databases of millions of scholarship awards for free. Scholarships and grants provide "free money" for college that, unlike student loans, you won't need to pay back.
With millions of local and national scholarship programs available, you can find scholarship competitions to enter year-round.
4) College Tuition Reimbursement Programs
If you're working while you're attending college, you may be able to take advantage of an educational reimbursement plan. Some employers provide full or partial tuition reimbursements for employees who have returned to the college classroom. Check with your human resources department to see if your employer offers a tuition reimbursement program.
A few employers will also provide assistance for dependents of their employees, so it's worthwhile for parents to look into whether their employer has any college tuition funds available for children of employees.
5) Student Loan Forgiveness Programs
Depending on your field of study and your post-graduation employment, you may qualify for federal, state, or private student loan forgiveness. For graduates qualified to work in certain health care, legal, law enforcement, social work, and education-related professions, taking a position in a low-income, high-need area for a designated period of time may allow you to reduce or eliminate your student loan balance.
Check federal and state financial aid websites for student loan forgiveness programs and a list of qualifying professions and majors.
6) Community College -- The College Cost-Cutter
Reducing the cost of college upfront can help you minimize the need for school loans. By attending a community college for your first two years of school, you can cut thousands of dollars off your four-year college bill.
Once you've finished your line-up of core courses, survey classes, and other basic undergraduate requirements at a less-expensive two-year school, you can transfer to the institution of your choice to complete your four-year bachelor's degree. When you graduate, your degree will carry the name of the college or university you finished at.
If you decide to go this route, work closely with your college advisors, particularly at the school where you want to complete your degree, to ensure that your coursework will transfer.
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