In 1980, the annual full-time price of a four-year college was $10,231 annually (including tuition, fees, room and board, and adjusted for inflation). By 2019-20, the total price increased to $28,775. That’s a 180% increase. More than half of bachelor’s degree students from public or private four-year colleges graduated with debt in 2020. The average debt load was $28,400, according to the College Board.
Astronomical levels of tuition debt will leave many graduates and their families with decades of loans to pay off. There are several ways to reduce this burden before it becomes a reality. One of the best ways to reduce the cost of college tuition is to not incur debt, which will only grow in size upon graduation. In this blog, we look at three ways to reduce college tuition costs:
- Invest in a 529 Plan that enables you to grow your investments tax-free.
- Apply for financial aid and scholarships.
- Work while in school.
A 529 college savings plan is a state-sponsored investment plan that enables you to save money for a beneficiary and pay for their education expenses. Investments grow tax-free, and you can withdraw funds tax-free to cover nearly any type of college expense. 529 plans may also offer additional state or federal tax benefits.
One of the best ways to invest in a 529 plan is to open an account when your child or beneficiary is young, 10+ years before college, and contribute a fixed amount every month. As you gain financial strength, you can boost the monthly contribution.
Assets in a 529 used for something other than qualified education expenses are subject to federal income taxes and a 10% penalty on the earnings. If the beneficiary gets a full scholarship to college, the penalty for taking the cash is waived. In the event that the initially designated beneficiary doesn’t end up going to college, there are some ways to avoid withdrawing fund without penalty. Below are five options:
- Change the beneficiary to a family member
- Make yourself the beneficiary
- Use the funds for apprenticeships
- Pay off student loan debt
- Put the funds toward K-12 education
Apply for Financial Aid and Scholarships
Another way to reduce the cost of college tuition is to apply for aid and scholarships. Many people make the wrong and costly mistake of assuming that they simply will not qualify for financial aid. Don’t be intimidated by the high sticker price of a college or university and let that dissuade you or your children from applying. Many of the best schools also have the largest endowments and vast resources to fund need-based tuition.
For example, Princeton University often costs less than your state college or university. YES! If offered admission, Princeton will meet 100% of your demonstrated financial need with grant aid. Most families at Princeton earning up to $100,000 a year will pay nothing, and many families with income above $100,000 will receive additional aid, including those at higher income levels with multiple children in college. More than 25% of undergraduates at the university are expected to receive aid covering full tuition, room and board. Many top universities are heading in this same direction.
Work While in College
While the primary focus of a college student should really be to get good grades and learn as much as possible, with education costs so high, many simply don’t have a choice. Approximately 40 percent of undergraduates work at least 30 hours a week. Unsurprisingly, that number is even higher for adult learners, many of whom balance full-time work, families and their studies.
Many schools offer work-study jobs that pay relatively well and are not at all demanding. If you can earn $20/hr for 20 hours per week minding the check-in desk at a school library, that translates to $400 per week, or $14,400 for an eight month year. And keep in mind that low earners pay minimal to no federal or state income taxes in most states.
In addition to the financial value of working while in school, being able to manage a part-time job while pursuing an education says a lot to prospective employers. The added responsibility and time management skills required to make this work will give you a significant leg up on your competition for any job you may pursue upon graduation. That in itself will likely translate into better post-graduation job offers and higher income.
