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 handbook.

Saving Money

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 student financial aid may be available, including loans.

You will also want to think about what kind of savings program to use or what kind of investment to make. By putting your money in some kind of savings program 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 program. Dividends are payments of part of a company's earnings to people who hold stock in the company.

A savings program has an "interest rate" associated with it; this refers to the rate at which the money in the program increases over a certain period of time. Principal refers to the face value or the amount of money you place in the savings program on which the interest is earned.

How much you would need to save each month in order to have enough available when your child begins college, 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.

Remember, by starting to save early and by using programs 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.

When deciding which type of savings program or Investment is right for you and your family, you should consider four features:

-- 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 program or investment through interest or dividends.

-- Liquidity: How quickly you can gain access to the money in the program or investment.

-- Time Frame: The number of years you will need to save or invest.

When you select one or more savings programs 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.

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. You can get information on savings programs at local banks and at your 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 down.

Financial Aid

Financial aid can help many families meet college costs. Every year millions of students apply for and receive financial aid. In fact, the great majority of students who go on for more education after school receive financial aid of some kind.

There are three main types of financial assistance available to qualified students at the college level:

-- Grants and Scholarships;

-- Loans; a

-- Work-Study.

* 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 courses.

* Loans

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. For students with no established credit record, it is usually easier to get student loans than other kinds of loans.

In all cases, a loan taken to pay for a college education must be repaid, whether or not a student completes the course 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 school.

* Work-Study Programs

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, some companies also offer work-study programs to students/employees.
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 school or one who displays a particular 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.

* Other Types of Assistance

Other organizations, such as corporations, unions, professional associations, and religious organizations sometimes award financial aid. You can find out about the availability of such scholarships by contacting someone from the specific organization or by directly contacting its main headquarters.

In addition, some organizations, particularly foundations, offer scholarships to minorities and disabled students. To learn more about such scholarships, go to the nearest public library with a good reference section and look for directories that list such scholarships. College admissions offices and school careers guidance counselors should also be able to provide more information about scholarships.

* Help in Getting More Information

The teachers or careers guidance counselors at your child's school should be able to provide information on when and how to apply for student loans and other types of aid. If they cannot give you this information, try a local college. Even if your child doesn't plan to attend that particular institution, financial aid officers there should have information on financial aid.

How Much Need-Based Financial Aid Can My Child Get?

The amount of need-based financial aid a student qualifies for depends on his or her financial need. Financial need is equal to the cost of education (estimated costs for college attendance and basic living expenses) minus the family contribution (the amount a student's family is expected to pay, which varies according to the family's financial resources).