Planning Ahead to Pay for College - COLLEGEdata - Pay Your Way

Planning Ahead to Pay for College

Is college a year or more away? Here are some options for planning your college financing strategy.

Don't wait to see financial aid award letters before you start planning how to pay your share of college expenses.

Popular College Saving Options

Setting aside money for college is always a good idea. These plans are commonly used for college saving.

  • 529 College Savings Plans. Annual investment limits are generous for 529 plans, allowing for substantial college savings. Plus, 529 accounts owned by parents are tax-free and have a low impact on financial aid calculations. Each state has different rules, fees, and limitations for these accounts, so shop around.
  • Prepaid Tuition Plans. A 529 prepaid tuition plan is a tax-free savings account that allows contributors to pre-pay for tuition. These plans are usually for public schools and in-state colleges. A private college plan is also available for over 270 private colleges.
  • Individual Retirement Accounts. Traditional and Roth IRAs are another choice for college savings, provided your own retirement savings are on track.

Learn more: How Student and Parent Income Affect Your Financial Aid

Popular College Tax Savings Options

If you pay Uncle Sam less, then you'll have more money available to pay for college. Consider whether you can take advantage of these education tax breaks.

  • You qualify for the American Opportunity credit if you pay college expenses for an undergraduate student during the first four years of college. The student must attend college full time.
  • You can claim the Lifetime Learning credit if you pay college expenses for an undergraduate, graduate, or professional student, even if the student attends college less than half-time.
  • The student loan interest deduction reduces taxable income based on qualified tuition and fees paid with a student loan during the tax year.

Learn more: Tax Breaks for College

Popular College Borrowing Options

Loans are part of most college financing plans. Bear in mind that loans make it easier to pay for college, but they don't reduce college cost since they have to be repaid. Research these borrowing options well before college starts, so you'll have some idea of how much interest rates will be, and how much in loan payments you can afford.

  • Subsidized student loans. Based on family income, some students qualify for federal subsidized loans and state-supported, low-interest loans. Payments are deferred until graduation with no interest accumulation.
  • Other student loans. Other loans to consider include federal unsubsidized loans, federal PLUS loans, and college-based loans.
  • Home equity loans and other personal borrowing. For some families, home equity lines of credit or loans from banks or other private lenders may offer the best rates and terms.

Learn more: Borrowing Options for College

Take Time to Find Affordable Schools

It's true that almost all students get some kind of aid from their college. But carefully planning where to apply will position the student to get the best aid. Look for colleges with a history of offering cost-reducing grants and scholarships, and where the student's GPA and test scores put them at the top of the freshman class.

Learn more: Finding Financially Friendly Colleges

Putting the College Financing Pieces Together

These savings methods and vehicles have been used successfully by many families, but it's a good idea to seek the advice of an experienced college financial advisor to help you choose the optimal college financing plan.

What' Next

  • Use the Net Price Calculator to estimate the amount of gift aid you might receive at different colleges.
  • To learn how aid reduces college costs, see What Is Financial Aid?
  • See How to Reduce College Costs for ideas on how to lower your college bill.
  • Use the Student Loan Calculator from 1FBUSA to find out how student loans may affect your financial future. See what your loan payments will be compared with how much you can afford to pay based on your expected salary after graduation.

Note: Financial information provided on this site is of a general nature and may not apply to your situation. Contact a financial or tax advisor before acting on such information.

For Students Age 18 and Older

Have you received a Personal Invitation to apply for a Student Credit card?

Learn how to qualify for a Personal Invitation to apply for a Student Credit Card


1st Financial Bank believes students who pick colleges wisely will also want to learn how to use credit cards wisely.

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