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Bottom Line Up Front

  • College savings plans, such as 529 plans, Education Savings Accounts and prepaid tuition plans, are designed to lower the cost of school through tax-breaks or government subsidies.
  • Grant and scholarship programs provide money that doesn’t have to be repaid.
  • If borrowing is necessary, federal student loans offer protections for borrowers such as delayed repayment plans and possible loan forgiveness. 
  • Private student loans from a credit union or bank could fill the gap for expenses that savings, grants, scholarships and federal student loans don’t cover.

Time to Read

5 minutes

May 3, 2022

The cost of college is going up each year, but families have many options for help paying for tuition and the many other expenses that come with getting an education. 

Saving for College

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

  • 529 plans: These let you choose from many investment options, including mutual funds, stocks and bonds. They earn money tax-free when used to pay for community college, a four-year school or other approved educational expenses.
  • Prepaid college tuition plans: Sometimes called guaranteed savings plans, these plans allow families to pre-purchase tuition for the future based on today’s cost of college. The state covers any cost increases when a child enrolls in an in-state school.
  • 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 education purposes.
  • Brokerage accounts: Brokerage accounts let you purchase and sell investments, including stocks, bonds and mutual funds, for any use. 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 add to your savings and don’t have to be repaid (unless you quit school), so they’re basically free money. Grants tend to be based on financial need while scholarships are often based on merit.

Many different entities, including the federal government, states, schools and nonprofit groups, offer scholarships and grants.

Federal grants include:

  • Federal Pell Grant: Undergraduate students may receive up to $6,895 for the 2022-2023 award year (July 1, 2022, to June 30, 2023), depending on financial need and school costs.
  • Iraq and Afghanistan Service Grant: Children who lost a parent as a result of military service in Iraq or Afghanistan after the events of 9/11 are eligible to receive a maximum grant award of $6,495 per year if they were younger than 24 or enrolled as college students 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 run 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 gives 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 set period of time.

Schools, employers, private companies, nonprofit organizations, religious groups and other entities offer scholarships typically based on one’s high school academic record, special talents or financial need. The federal government, in addition to some nonprofits, 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 groups, such as the American Legion and American Veterans (AMVETS), also offer scholarships with various eligibility requirements.

Start your grant program and scholarship search early on to make sure you don’t miss any opportunities you might qualify for.

Loans

The high cost of higher education means many students need to take out loans to pay for college. If you have a gap between what you’ve saved (plus any work-study, part-time job, scholarship or grant money) and the cost of attendance, you may want to consider a student loan. 

You’ll find two options:

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 have. These can include the ability to postpone or reduce monthly payments during periods of financial hardship, as well as loan forgiveness programs. 

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 loans: The government pays the loan interest while you attend school. 
    • Unsubsidized loans: Loan interest is deferred while you’re enrolled in school and then later added to your repayment 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 makes financial aid awards and is your lender.

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. Navy Federal Credit Union offers private student loans. To be eligible, you need to be a member and meet certain credit requirements.

It literally “pays” to investigate all the sources you have available to fund your college education. Talk to your school’s financial aid department and research grants and scholarships. Be ready to fill out the FAFSA (available January 1) and then know if you have gaps, private student loans are available through your credit union or bank. 

Key Takeaways

Disclosures

This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.