A Guide to financing options

Paying for College

It’s no secret that paying for college is expensive. With public school averaging $18,000 per year for tuition, books and fees, and private school costs coming in closer to $42,000 a year, the dream of sending your kids to college may seem impossible. But with some smart planning, you can make it happen.

Start saving for college early

It's never too soon to start saving for your child's college education. There are plenty of great options available, including 529 Savings Plans, which we'll cover later, as well as traditional savings and CD accounts which put the power of compound interest to work for you—meaning you'll earn more money on your savings over time.

Understand the real costs 

To figure out how much you'll need to cover the costs of higher education, you'll need to do a little homework. For starters, think about educational goals. Does your child want a vocational degree—or a bachelor's degree? Do they know what they want to study? Or are they keeping their options open, maybe requiring a little more time to figure out their major?

Next, calculate total expenses. Keep in mind, there's more than just room and board and tuition to consider. You'll also be paying for books and school supplies, a computer and other items for your child's room, as well as travel and miscellaneous expenses. 

Finally, compare prices at different schools. Maybe you dream of sending your child to an Ivy League school, but you don't want to be paying off a school loan 25 years from now. Could you get the same programs at a less expensive school?

Use this calculator to help understand what it will take to save for college

Save tax-free for college 

There are three main types of college savings accounts that can help you save tax-free for your child's tuition.

The Coverdell Education Savings Account is a savings account in which you invest money to help it grow. The maximum annual contribution limit is $2,000 per year per student. Funds must be used by the time the student is 30 years old.

529 College Savings Plans are another great option. Like the Coverdell ESA, the 529 allows you to make contributions. But the 529 lets you contribute more. Another benefit of the 529 is that your investments grow tax-free as long as the money is used to pay for expenses approved by the IRS such as: tuition, fees, books, supplies, and room and board for higher education. While contributions to a 529 are not federally tax-deductible, some states allow families to deduct a partial or complete amount of their contribution from their state income tax. Talk to your tax advisor to learn more.

529 Pre-paid Tuition Plans let you pre-pay all or part of the costs of a college education, which means you're locking in tuition costs at today's prices. No matter how tuition rates rise in the future, the educational units you purchase today are guaranteed for the future. Some pre-paid plans cover just tuition and fees while others will also pay for room and board.

Washington's 529 program is called GET (Guaranteed Education Tuition). You can use your GET units at nearly any public or private college, university or technical school in the United States and even at some colleges in other countries. 

Study up on financial aid

There are three primary types of financial aid: loans (which have to be repaid); grants and scholarships (which don't have to be repaid); and employment programs, like work-study, that let students earn money and gain job experience while they're in school. 

The amount and type of financial aid offered is based on two factors: merit (scholastic, athletic, musical, etc.) and financial need. 

About two-thirds of full-time undergraduate college students receive some sort of financial aid. To find out if you're eligible, you'll want to fill out the Free Application for Financial Student Aid (FAFSA): It's a necessary stepping-stone to getting any federal financial aid.

Government Loans are borrowed money. As with any loan, a government loan will have to be re-paid with interest. But compared to private loans, these can be a better deal thanks to a lower fixed interest rate, more flexible repayment terms and potentially deferred payments.

Stafford Loans are offered to students. They're used to supplement personal and family resources, scholarships, grants, and work-study. They may be subsidized (which means the federal government makes interest payments while your child is in school) or unsubsidized (which means interest accrues).

The Parent PLUS Loan is offered to parents of students enrolled at least part-time at participating post-secondary institutions. These loans can cover more of the cost of education than a Stafford loan, but they have higher interest rates, and are not available to students.

Government Grants are given by federal, state or local governments. These financial awards are often need-based and do not need to be repaid. Examples include the Federal Pell Grant, Federal Supplementary Educational Opportunity and the Teacher Education Assistance for College and Higher Learning (TEACH) Grant.

Scholarships are another great vehicle to pay for college and are available through a variety of organizations, including universities, employers, individuals, nonprofits and religious and professional groups. Scholarships can be a good resource for families that have too much income to qualify for federal financial aid, but not enough to pay for school without assistance.

Other Loans and Lines of Credit

Taking out a private student loan or drawing on a line of credit to pay for college offers you yet another financing option. And while it's good to understand your choices, you may want to exhaust all federal options first. Unlike government loans, private loans typically come with an obligation to be paid back immediately. They also come with steeper interest rates and stricter terms. 

This is for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant. Investments are not federally insured, not subject to credit union or affiliate guarantee, and may lose value.