Step One: If you’re trying to save for your child’s education, start by funding a 529 Plan after you’ve maxed out your retirement account. Why? Your child can apply for financial aid, but there is no assistance for retirement.
That brings me to Step Two: Apply for financial aid. Start by filling out a FAFSA. FAFSA stands for Free Application for Federal Student Aid and should be filled out only at fafsa.ed.gov. Do not complete it at fafsa.com or any other commercial site that charges money–it’s called a free application for a reason.
Step Three: Pursue every other grant, scholarship and financial aid opportunity that you can. There are countless. Head online to find free services that help you look, like FastWeb, Scholarships.com, FindTuition.com, ScholarshipExperts.com and Sallie Mae’s The College Answer.
Step Four: Don’t discount the value of a less expensive or community college option. In-state, subsidized colleges can have excellent reputations and present a tremendous opportunity to save. Think of it this way: Let’s say your child could be paid $10,000 more a year after graduating from a private school, but she’ll be paying $900 a month in student loan payments—that’s $10,800 a year and it negates the potentially higher salary. Another route is for your child to spend her first two years at an in-state or community college, saving and studying, and then transfer to her dream school to finish up her degree.
Step Five: As your child nears college-age, consider hiring a financial advisor to help you. Sure, friends and family will have endless advice, but they likely don’t know the specifics of your situation, and school counselors may or may not be competent to give you good financial advice.
Step Six: Do the math. Remember to factor in extras like transportation to and from campus. After you’ve exhausted every other available funding option—scholarships, aid, work-study, then consider a student loan. Just because you qualify doesn’t mean it’s a good idea to take one—carefully examine terms and interest rates and figure out how long the loan will take to pay off with the graduate’s expected salary and what the monthly payment would be. Do not co-sign your child’s loan unless you can afford to pay it off if they can’t; co-signing isn’t just a sign of good faith—it means you can be held responsible for the debt. This is another example when saying “no” can be in everyone’s best interest. According to the Consumer Financial Protection Bureau, nearly a third of that 1.2 trillion dollars of student loan debt is either late or in default. That’s not setting anyone up for success.