Types of Colleges
Choosing a College
Cost of College
Paying For It
Long Range Plan
How can I afford to send my child to college?
Saving money in advance and obtaining financial aid are common ways for parents
to make their child's education affordable. Other ways of making college
affordable, such as attending college part time, will be discussed later in this
Saving money is the primary way to prepare for the costs of college. Setting
aside a certain amount every month or each payday will help build up a fund for
college. If you and your child begin saving early, the amount you have to set
aside each month will be smaller.
In order to set up a savings schedule, you'll need to think about where your
child might attend college, how much that type of college might cost, and how
much you can afford to save. Keep in mind that colleges of the same type have a
range of costs and your child may be able to attend one that is less expensive.
You can also pay part of the costs from your earnings while your child is
attending school. In addition, your child may also be able to meet some of the
costs of college by working during the school year or during the summer.
Finally, some Federal, State, or other student financial aid may be available,
including loans to you and to your child.
You will also want to think about what kind of savings instrument to use or
what kind of investment to make. By putting your money in some kind of savings
instrument or investment, you can set aside small amounts of money regularly and
the money will earn interest or dividends. Interest refers to the amount that
your money earns when it is kept in a savings instrument. Dividends are payments
of part of a company's earnings to people who hold stock in the company. A
savings instrument has an "interest rate" associated with it; this
refers to the rate at which the money in the instrument increases over a certain
period of time. Principal refers to the face value or the amount of money you
place in the savings instrument on which the interest is earned.
Chart 7 shows how much you would need to save each month in order to have
$10,000 available when your child begins college. As the chart demonstrates, the
amount varies depending on the interest rate you obtain and the number of years
that you save. The higher the interest rate and the earlier you begin to save,
the less you need to set aside each month.
For example, if you start saving when your child is born, you will have 18
years to save. As shown on the chart, each month you will only have to deposit
$32 in an account earning 4 percent interest in order to save $10,099 by the
time your child is 18. However, if you use the same savings instrument but do
not start to save until your child is 16, you will have to save $401 each month.
In addition, if you use the instrument with the higher interest rate -- 8
percent -- you will only have to put away $21 each month starting when your
child is born.
Remember, by starting to save early and by using instruments with higher
interest rates, you can put aside smaller amounts. If you wait until later to
start saving, you may not be able to afford to put away the larger amounts of
money needed to meet your savings goals.
Amount You Would Need To Save To Have $10,000 Available
When Your Child Begins College
|If you start saving when
your child is
||Number of years saving
|At 4% interest.
|At 8% interest.
When deciding which type of savings instrument or investment is right for you
and your family, you should consider four features:
When you select one or more savings instruments or investments, you should
balance these factors by minimizing the risk while maximizing the return on your
money. You will also want to be sure that you will be able to access the money
at the time you need to pay for your child's education.
- Risk: The danger that the money you set aside could be
worth less in the future.
- Return: The amount of money you earn on the savings
instrument or investment through interest or dividends.
- Liquidity: How quickly you can gain access to the money in
the instrument or investment.
- Time Frame: The number of years you will need to save or
If you start early enough, you may feel confident about making some long-term
investments. Some investments are riskier than others but can help you earn more
money over time. Chart 8
lists some of the major kinds of savings instruments and investments that you
may want to use. You can get more information on these and other savings
instruments at local banks and at your neighborhood library.
Don't forget that you won't necessarily have to save for the
entire cost of college. The following section tells about student financial aid
for which you and your child might qualify and other ways to keep college costs
Financial aid can help many families meet college costs. Every year millions of
students apply for and receive financial aid. In fact, almost one-half of all
students who go on for more education after high school receive financial aid of
some kind. In school year 1994- 95, postsecondary students received about $47
billion in financial aid.
There are three main types of financial assistance available to qualified
students at the college level:
- Grants and Scholarships;
- Loans; and
Grants and Scholarships
Grants and scholarships provide aid that does not have to be repaid. However,
some require that recipients maintain certain grade levels or take certain
Loans are another type of financial aid and are available to both students and
parents. Like a car loan or a mortgage for a house, an education loan must
eventually be repaid. Often, payments do not begin until the student finishes
school, and the interest rate on education loans is commonly lower than for
other types of loans. For students with no established credit record, it is
usually easier to get student loans than other kinds of loans.
There are many different kinds of education loans. Before taking out any
loan, be sure to ask the following kinds of questions:
- What are the exact provisions of the loan?
- What is the interest rate?
- Exactly how much has to be paid in interest?
- What will the monthly payments be?
- When will the monthly payments begin?
- How long will the monthly payments last?
- What happens if you miss one of the monthly payments?
- Is there a grace period for paying back the loan?
In all cases, a loan taken to pay for a college education must be repaid,
whether or not a student finishes school or gets a job after graduation. Failure
to repay a student loan can ruin a person's credit rating and make finances much
more difficult in the future. This is an important reason to consider a
college's graduation and job placement rates when you help your child choose a
Many students work during the summer and/or part time during the school year to
help pay for college. Although many obtain jobs on their own, many colleges also
offer work-study programs to their students. A work-study job is often part of a
student's financial aid package. The jobs are usually on campus and the money
earned is used to pay for tuition or other college charges. The types of
financial aid discussed above can be merit-based, need-based, or a combination
of merit-based and need-based.
Merit-based Financial Aid
Merit-based assistance, usually in the form of scholarships or grants, is given
to students who meet requirements not related to financial needs. For example, a
merit scholarship may be given to a student who has done well in high school or
one who displays artistic or athletic talent. Most merit-based aid is awarded on
the basis of academic performance or potential.
Need-based Financial Aid
Need-based means that the amount of aid a student can receive depends on the
cost of the college and on his or her family's ability to pay these costs. Most
financial aid is need-based and is available to qualified students.
From: "Preparing Your Child for
College" Copyright© 2000-01 The U.S. Department of Education, All