Millions of college-bound high school seniors are receiving college acceptance letters and financial aid award packages this month. Now it’s decision time—not only for the student, but for Mom and Dad too—forcing families to grapple with how to pay for it all.
Many parents may be overwhelmed by the cost of college, which has ballooned since they were undergrads. A Sallie Mae report found families spent an average of $21,178 on total college costs last year. But there’s no need to panic. The good news is, financial advisors say, you don’t have to pay for the whole thing. There are various funding options for college.
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Most families pay for nearly a third of college costs with “free money”—scholarships and grants—according to Sallie Mae. More than a quarter—27 percent—of the total college tab is covered by loans. Another 27 percent comes from parents’ income and savings.
A plain-vanilla savings account is often their top choice for savings, though 529 college savings plans offer more tax breaks.
“These accounts are built to give people tax benefits in saving for college and people who aren’t using them are missing out on those tax benefits and potentially have less money for college when it comes time to pay for that,” said Stuart Ritter, a certified financial planner with T. Rowe Price.
