Make saving for college a priority by setting aside money in special savings accounts for educational expenses. Unlike regular interest-earning savings accounts, educational savings accounts usually aren’t taxed. When it comes to choosing an account to build your educational savings, you have plenty of options, including:

  • 529 plans: These allow you to choose from a selection of investment options, including mutual funds, stocks or fund portfolios, and earned interest on these investments tax-free.
  • prepaid college tuition plans: Sometimes called guaranteed savings plans, these plans enable families to pre-purchase tuition based on today’s rates. The state covers any tuition increases when a child enrolls in an in-state college.
  • Coverdell Education Savings Accounts: Formerly called an education IRA, this account allows families to set aside $2,000 per child each year to be used tax-free for educational purposes.
  • brokerage accounts: Brokerage accounts allow you to purchase and sell investments, including stocks, bonds and mutual funds, through a brokerage firm. You can take money out for educational expenses, but you’re taxed on any investment profits.

Scholarships and Grants

Scholarships and grants are types of financial aid that can supplement your savings and don’t have to be repaid (unless you withdraw from school). Grants tend to be based on financial need, whereas scholarships are often awarded for one’s accomplishments or merit.

Many different entities, including the federal government, state government, schools, and private or nonprofit organizations offer scholarships and grants.

Federal grants include the following:

  • Federal Pell Grant: Undergraduate students may receive up to $5,775 for the 2015-2016 award year (July 1, 2015, to June 30, 2016), depending on financial need and school costs.
  • Iraq and Afghanistan Service Grant: Children who lost a military parent as a result of military service performed in Iraq or Afghanistan after the events of 9/11 are eligible to receive a maximum grant award of about $5,300 per year if they were younger than 24 or enrolled in college at least part-time at the time of the parent’s death.
  • Federal Supplemental Educational Opportunity Grant (FSEOG): Given to undergraduates with exceptional financial needs, the award ranges from $100 to $4,000 per year. This campus-based aid is administered by a college’s financial aid office but isn’t offered at all schools. 
  • Teacher Education Assistance for College and Higher Education Grants (TEACH): This program provides grants of up to $4,000 a year to students who are studying to become teachers. Recipients of this grant must agree to teach certain classes, such as math, science, special education, foreign language or bilingual education, at a school that serves low-income families for a designated period of time.

Schools, employers, private companies, nonprofit organizations, religious groups and other entities offer scholarships typically based on one’s academic achievements, special talents or, occasionally, financial need. The federal government, in addition to nonprofit organizations, offers scholarship money to eligible military families. This includes the Reserve Officers’ Training Corps (ROTC) scholarships and the U.S. Department of Veterans Affairs (VA) education benefits for widows and children of deceased military personnel. Veterans service organizations, such as the American Legion and American Veterans (AMVETS), also offer scholarships.

Start seeking out and applying for grants and scholarships when you begin your college applications or even sooner!


The high cost of higher education means many students need to take out loans to pay for college. If there is a gap between what you’ve saved (plus any scholarship and grant money) and the cost to attend, you may want to consider a student loan. You’ll encounter two options:

1. Federal student loans: Backed by the government and offering a low, fixed interest rate, federal loans provide protections for borrowers that other loans don’t offer, such as the ability to postpone or reduce payments during periods of financial hardship. To be eligible for any federal student loan, you must complete a Free Application for Federal Student Aid (FAFSA) form.

  • The William D. Ford Federal Direct Loan Program: Funded by the U.S. Department of Education, this is the largest federal student loan program. With this program, the U.S. Department of Education is your lender. Direct loans may be:     
  • subsidized: The government pays the loan interest while you attend school. 
  • unsubsidized: Loan interest is deferred while you’re enrolled in school and then later added to your loan balance. 
  • PLUS loans: Awarded to graduate and doctoral students, or parents of undergraduates, to pay for college costs not covered by other financial aid.
  • Federal Perkins Loan Program: The school loans out the money and is your lender.

2. Private student loans: These are offered through banks, credit unions, state agencies or schools. They’re a good way to pay for educational expenses not covered by other means.  


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