Saving for College on a Shoestring Budget
College is expensive and will only become more so. The average tuition for a four-year degree is already more than $100,000. If you are contemplating putting a child through college in years to come, there is no time to waste starting to save. But for families struggling to make ends meet, that prospect can be daunting.
With multiple college tuitions looming in their financial future, Dara and Rudy Gray of Port Jefferson, NY, are among those who wish they had saved more, but scraping by with daily expenses made it impossible to build up a college nest egg.
Just months ago, their 17-year-old son began applying to colleges, and with a 13-year-old and an 8-year-old growing up quickly, they have more college dreams to fulfill. To defray the cost of tuition, Dara, a one-time stay-at-home mom, picked up a part-time job and sets her paychecks aside for college.
Struggling to find funds to pay for college is not atypical for families, according to Sallie Mae, the student loan company. According to Sallie Mae’s national study, “2017: How America Pays for College,” while 86 percent of families expect their child to go to college only 39 percent have made plans to pay for it.
Luckily, in the Grays' case, their eldest earned an athletic scholarship to a four-year university, but with two more children close behind, Dara has no intention of giving up her job.
Increasing household income is an important step toward managing a college tuition, financial advisors say, but they also cousel that families on tight budgets should know about a host of resources to make college affordable — even when its just a year away.
Find Hidden Money
Even the smallest change in spending patterns can help families with tight budgets save for college.
“Parents may look at their budget and say they can’t cut anything out,” said Katie Horton, a registered investment advisor at HC Financial Advisors, Inc. in Lafayette, Calif. “They need to buy gas. They need to eat food. They need to do all of these things that they are doing — but they can always find ways to step down on their expenses.”
Hidden nuggets of cash can be found after cutting down on cell phone plan, choosing a less expensive cable package, dining out less or not buying a new car.
“Maybe you don’t need that premium cable package and if you go out to eat you can order water and don’t get dessert,” Horton said. “Even putting that $3 you save on a soft drink towards college accumulates quickly overtime.”
Parents need to take a hard look at what can be deemed fluff.
“Cutting certain items from your budget is not a matter of depriving your family of things, it is just finding ways to cut down on your expenses,” Horton says. “These small changes made consistently overtime are very impactful.”
Make it a Habit
Even if money is tight it is a lot easier to just get into the habit of saving from the beginning — or as soon as you can if you already have toddlers — and make it a part of your expenses.
“I think a lot of people will hold off on it because they don’t think they have enough to contribute, but whatever you can contribute, even if it is a small amount – even if it is $50 or less a month — will be helpful because time is on your side," Horton said.
"Start with $50, or an amount you can afford and maybe you’ll realize, 'Hey we are okay doing this,' and maybe you can raise it to $55," she said. "Making those small increases over time will be helpful when it is college time. Even if there is a month where you can’t meet your $50 month goal, still save what you can, even if it is $25."
Automatic Savings
Make automatic savings a habit.
“You can set it up where a certain amount of money comes out of your paycheck and goes directly into your child’s college savings account,” Horton said. “When the money is automatically placed into the account you don’t have to think about it and you’re not missing it.”
From a behavioral perspective, it helps parents to be much more successful in accumulating funds.
“Transfer any amount you can afford," Horton said. “Just save — you will see those funds accumulate and grow.”
Skin in the Game
There are meaningful ways for older kids to help cover some of the cost for tuition.
If a child is able to work and help put money into the bank for their college tuition, this gets them involved in the process as they take some responsibility for their own future.
“It puts some skin in the game for them,” Horton said. “They have to then make the sacrifice to work and to start earning some of their own income to pay for their college and I think it makes it a richer experience for them.”
Once enrolled in college, there are programs students can apply for to earn funds toward their college career.
“Federal work/study programs provide part-time employment to students while they are enrolled in school to help them pay off their education expenses,” Horton said.
Don't Neglect the FAFSA
The Office of Federal Student Aid, a branch of the United States Department of Education, provides funds for eligible college students. However, many families never take advantage of this resource.
This year, $2.3 billion in free federal grant money for college was unclaimed, according to an analysis by NerdWallet, a personal finance website. To access these funds, parents need to complete the Free Application for Federal Student Aid (FAFSA).
“The importance of FAFSA and tapping into available funds is critical," said Richard Koll, senior vice president with Investors Bank Financial Group in Short Hills, NJ. “People who are struggling to save for college are likely going to be candidates for financial assistance.”
The only way to access federal financial aid, including free aid that doesn’t have to be paid back, is to complete the FAFSA each year, Koll noted.
One of the free federal aid programs are Pell Grants, which are awarded to students from low-income families. Unlike student loans, Pell Grants do not have to be repaid. They are awarded based on financial need — determined via the FAFSA — and other factors.
Finding Funds in Scholarships
College Aid Awards
With so many colleges offering scholarships, and with websites like www.scholarshipamerica.org and www.scholarships.com, there are immediate funds available to students.
Scholarships were the largest contributor to how American families paid for college with Sallie Mae reporting that 49 percent of families with college students received some sort of scholarship for the 2016-17 academic year.
“There are more resources for scholarships than you can count,” Koll said. “There is no reason why you can’t qualify for several different scholarships.”
The search for scholarships should continue all the way up through a student’s final year in college, he noted. Additionally, students can also approach the department that offers their course of study and ask about any scholarships in their specific major.
Private/Community Sponsors
Three-quarters of college bound students received awards from private sponsors or community groups in 2017, according to Sallie Mae, so it's well worth checking out the neighborhood for extra funds.
“Local organizations and high school guidance counselors are a great resource because they have a lot of knowledge on what is available for students and where to turn to for scholarships and other assistance,” Horton explained.
Check For State Aid
College bound students are encouraged to explore state assistance, with Sallie Mae reporting that 65 percent of students at state schools earned a state scholarship in 2017.
“Individual states offer different programs, so parents should check with their state to see if there are any programs that might help,” Horton said.
For example, Texas offers the Texas Tuition Promise Fund, which is designed to help families prepay for all or some of their child’s future tuition at any two- or four-year Texas public college or university. The plan allows parents to purchase “tuition units” that locks in “today’s college prices” so parents can avoid any future tuition hikes.
New York State offers a Tuition Assistance Program (TAP), which helps eligible New York State residents to pay tuition at approved schools in New York State. An annual TAP award can be up to $5,165 — and since TAP is a grant, the funds do not have to be paid back.
Be Creative
When parents have only a few short years to compile the funds needed for tuition, they must think out of the box.
“I have seen some fairly creative things done to reach college goals,” Horton said. “One [west-coast] client, whose child really wanted to go to a college out east found out a lot of east coast colleges have rowing/crewing programs. So their child got involved in rowing at her high school and now she is being recruited and offered scholarships out east for rowing.”
“The child was definitely thinking ahead where she wanted to go and what she can do to help get there,” she noted.
Additionally, if a college is offering financial assistance, don’t be shy to ask for more.
“Try to bargain for more aid," Horton said. “Every college has a financial aid office, so go in and speak with them about your unique situation. It never hurts to ask. Just talk to financial aid office to see if there is anything else they can do to help.”
529 Plan
The 529 Plan, a tax-advantaged savings plan designed to encourage saving for future college costs, was introduced in 1996 — yet only 13 percent of families reported using funds from a 529 plan to pay for college this year, according to Sallie Mae.
Ideally, parents should start investing in a 529 Plan as soon as their child is born, however, parents can start contributing at any age in their child’s life.
“The 529 Plan is probably the best resource that I know of as far as a way to save for education for your kids,” Horton said. “The reason it is so beneficial is because you can put the money in and all the growth on that money is tax free.”
Additionally, when parents pull out the funds for qualified education expenses, they don’t have to pay any taxes on that money.
“Start saving as early as you can because time is on your side,” Horton said. “This allows for that money to grow even longer.”
Another helpful aspect about 529 plans is that others can contribute to help grow the education fund.
It’s Never Too Late
It’s never too late to start saving, whether it’s in a 529 Plan or any other form of savings.
“Just because you have a couple of years left before your child goes to college, put that money away because it adds up,” Koll said. “Even if it’s just money for books or it gets you going on a payment plan while you are figuring out how to adjust and save to pay for the rest of it — put aside whatever you can afford.”
Treat college savings like a bill, Koll suggested.
“When you put aside the money you forget about it,” he said. “You will make the adjustment because it’s human nature. Then, you turnaround one day and look what you’ve saved and say, ‘Holy mackerel, I have a good balance in there.’”
When time and money are short, also parents need to adjust their children’s expectations, he explained.
“Look into state schools where tuition and room and board is one-third the price of a private school,” Koll noted. “We get caught in thinking we have to give our children everything, and parents feel bad they can’t afford to send their child to Harvard. If there are any dollars at all, give your child a budget. Let your child know you have $4,000 a year, $10,000 or $30,000 a year — whatever it is — you are giving them a budget, and that will set expectations for them.”
The Power of Knowledge
The good news is there is a vast amount of college aid out there at no cost to parents.
“Parents always want to know where they are going to find the money if it doesn’t exist,” Koll said. “There is no magic bullet, so parents have to do their research.”
If parents are having financial struggles the first step is to look into resources.
“You need to ask, 'What is going to be available to me if I don’t have the resources?’” he noted. “You can only do what you can do, but there are other ways to skin a cat, maybe it will be through some loans and that will not be the end of the world, but make sure every resource has been tapped.”
Make it a family mission to navigate through the college application process, Koll advised.
“The resources on this subject are probably the greatest resources we have in all subjects around financial planning,” he said.