
The Cost of Education
When planning for the cost of college tuition, have an open mind and consider all options available. For example, would your child consider attending a public university versus a private school to reduce costs, or are they willing to start at a community college and transfer credits to their dream school?
Historically, college costs have increased at about twice the rate of inflation, from 5% to 8% per year. And these costs are already very high, so a proper education funding strategy is critical in balancing these costs while also planning for retirement. Take a look at the national average costs below.
- Public Two-Year Commuter: $18,830
- Public Four-Year In-State On-Campus: $27,330
- Public Four-Year Out-Of-State On-Campus: $44,150
- Private Nonprofit Four-Year On-Campus: $55,800
- Public Master’s In-State: $24,620
- Private Master’s: $46,580
There are many other factors may also affect the cost of education including:
- Student’s age
- Academic record
- Financial aid opportunities (federal, state)
- Scholarships
- Degree goal
- Housing costs (on- or off-campus)
- Military service

Education Savings Plans
529 Savings Plans
A tax-advantaged savings account specifically created for the beneficiary’s educational expenses is a 529 savings plan. A 529 savings plan’s contributions have been taxed, and money can grow tax-free and withdrawn if used for educational costs like tuition, books, or room and board. While there are no annual limits on contributions to 529 plans, there are maximum lifetime limits per beneficiary that range from $235,000 to $529,000, depending on the state.
Coverdell Education Savings Accounts
There are similarities between a Coverdell education savings account (ESA), formerly known as the Education IRA, and a 529 savings plan in that the contributions to an ESA can grow tax-free. However, families can only contribute a maximum of $2,000 per year per child to a Coverdell ESA, and the funds must be used by the time the recipient turns 30. Additionally, you will typically have more investment alternatives than a standard savings account.
Institutional Prepaid Contract
By locking in current tuition and fee rates, which the participating institutions guarantee, the Private College 529 Plan is the only federally approved 529 prepaid tuition plan that enables families to save money at hundreds of private universities around the nation.


Financial Aid
The majority of students find financial aid to be a valuable resource in helping them pay for education. Even before your child decides which university they want to attend, you and your child can learn what financial aid you may be eligible for by completing the Free Application for Federal Student Aid (FAFSA). Some of the most typical types of financial assistance include the following:
Student Loans
Federal student loans will most likely be included in the help package if you elect to submit a financial aid application. So, consider the type of loans and the terms and circumstances before letting your child take any loans. Federal and private student loans are the two main types of student loans:
Scholarships and Grants
A college may give scholarships and awards as a component of a financial assistance package, or applicants may submit independent applications. Scholarships are frequently merit-based, meaning they are given to students based on their accomplishments. Grants are based on your family’s financial position and your needs. Both are highly competitive, so you might need to search to find them, but it will be worthwhile.
Work-Study Jobs
Federal work-study positions allow students to work part-time while they are enrolled in classes. Work-study enables your child to work on-campus employment around a flexible schedule if it is part of a financial package. Your child’s work-study earnings, unlike those from a part-time job, are not required to be reported on the FAFSA and won’t affect financial assistance for the following year.



Other Funding Options
Accessing Home Equity
You might be able to utilize the equity in your home, if you own one, to pay for your child’s education. In addition, the interest you pay on a home equity loan is tax deductible, making it potentially less expensive than other loan kinds. These loans, however, often don’t provide flexibility if your financial situation were to change.
Retirement Accounts
While some parents use their retirement assets to help pay for their children’s college expenses, you should consider the implications before making this decision. For example, suppose you take money out of a retirement account, such as a 401(k) or a Roth IRA, to pay for your child’s college expenses. You may incur additional costs like income tax or early withdrawal penalties, and your future retirement income may be impacted.
Permanent Life Insurance
Another choice that some parents make is to get cash value life insurance to pay for their children’s education costs. A permanent life insurance policy assigns a portion of your premium payments to the cash value account and the death benefit. You can borrow money against your cash value when correctly structured, which will probably lower the death benefit. The policy owner has the freedom to utilize the loaned money (the cash value) however they see fit, including for education costs. Furthermore, the cash value is not considered when determining a student’s financial aid package.
A life insurance policy may not be the most cost-effective way to save money because it may take some time for the cash value to exceed the cost of the premiums and because annual fees for keeping the accounts in good standing might mount.