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Getting ready for college—either for yourself or a child—includes a long list of to-dos. From campus visits and applications to financial aid and budgeting for expenses, breaking these tasks into manageable steps can save you money—and stress—in the long-run.
A college education can be quite expensive. It’s important to understand the true cost of higher education and how much you can afford.
The total cost to attend a particular school—tuition, fees, room, board, books and supplies, and transportation—can be quite intimidating. But financial aid in the form of scholarships, grants, waivers, and commuting and tuition discounts can reduce the total cost. To help students and parents understand how much their school of choice will cost, colleges provide online “net-price calculators,” which factor in these considerations.
When determining how to pay for higher education, consider a three-pronged approach. The first funding source is money saved before entering college. The second is financial aid—scholarships, grants, and student loans. And the last source is income earned while the student is in college—like income from the student’s part-time job or income earned by parents (e.g., bonuses or employee stock).
Let’s take a look at some specific college savings vehicles:
If you have access to Ayco through your employer, contact an Ayco coach for more information on how you can use these vehicles to save for higher education.
College education expenses can become a large part of your budget, alongside other major financial expenses—like a mortgage, paying off debt or retirement savings. Financial aid, offered through the government or a school, can help you keep your overall budget in balance.
Financial aid is calculated based on the available assets and income of the student and their family, taking into account the number of family members and number of children in college.
When determining a family’s eligibility for financial aid, the student’s income and assets have a greater impact than those of the parents. The federal financial aid methodology takes into account roughly 50% of a student’s available income and 20% of assets in their name, as compared to 22–47% of parents’ income and up to 5.64% of counted assets owned by the parents. Not all assets count toward the financial aid application process. If Ayco is provided through your employer, speak with a coach to determine which assets have an impact on financial-aid eligibility.
Whether or not you feel your student will qualify for financial aid, it doesn’t hurt to apply. There’s no cost for filing the federal financial aid application.
How much should you save? There is no one-size-fits-all answer.
When deciding how much to save, parents should consider all of their financial goals, including retirement. Work with an Ayco coach to analyze your budget and see how much you can save while also making progress on your other financial goals.
Worried about student loans? You’re not alone. As of 2020, 45 million borrowers collectively owe nearly $1.6 trillion in student loan debt in the U.S.1 There’s a reason so many people turn to them—they can be an effective way to fund an education.
For more information on student loans, check out our loan eBook, Lending a Hand.
It is important to consider all of your options. There are many funding sources for higher education. The key here is to focus on how much you can save rather than how much you can’t.
There's a lot to think about. If you have access to Ayco through your employer, connect with a coach to review your options and consider how education funding fits into your overall financial plan.
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Updated for tax year 2020
Updated for tax year 2019