Explore Your Options When Preparing to Pay for College

Published on Feb 06, 2015 11:19 am

The benefits of a college education are hard to refute. College graduates earn more than workers with only a high school diploma, their earnings increase faster, and they’re much more likely to be employed, according to research by the College Board. The question isn’t whether a college degree will be worth the investment of time and money, but rather how will you pay for college?

College costs continue to increase, with a year’s worth of college costing between $14,300 at a public school to $37,800 at a private, nonprofit institution, the National Center for Education Statistics reports. Many families pursue multiple options for paying for college, including grants, scholarships, college savings funds and student loans. It’s never too early to begin thinking about how you’ll fund a college education.

Savings Options

Starting a college fund when your child is young can help make paying for college easier down the road. Multiple options are available to help you set aside funds for a child’s college education. Some, such as 529 plans and Coverdell Education Savings Accounts, offer certain tax benefits but come with different restrictions, like limits on how much you can contribute each year and income qualifications for participation. Others, such as mutual funds, savings bonds, custodial accounts and stocks, offer different advantages (like full autonomy over your investment) and different risks (such as a possible loss of principal).

Before you decide on any college saving plan, be sure to thoroughly research your options so you can choose the vehicle that best fits your lifestyle and savings goals.

Student Loan Basics

Many families turn to student loans to fund their child’s education. In fact, in 2012, 71% of all students graduating from four-year colleges had student loan bills, and the average total debt approached $30,000, according to the Project on Student Debt.

Depending on how successful you’ve been at saving for college, you may need loans to help pay for part of your educational expenses. Even if you qualify for financial aid such as grants or scholarships, the high cost of a college education may make a loan necessary. Fortunately, you have many options for securing a student loan, from seeking a private loan to a direct loan from the U.S. Department of Education.

You can find great student information online at the Department of Education’s website studentloans.gov.

Credit Impact of Student Loan Debt

Because college-bound young adults often don’t have much credit history, it’s not uncommon for parents to cosign for student loans, or even take the loans in their own names. Like any other debt, a student loan will appear on the borrower’s credit report, and the payment history on the loan can affect the credit scores of both the borrower and cosigner. A student loan also affects the borrower’s ratio of credit used to credit available, another factor in determining credit scores.

Managed well, a student loan not only helps pay for a college education, it can help a graduate establish a positive credit history when he or she faithfully repays the debt. Failing to repay the loan, or making late payments, however, can have a negative impact on your credit.

As with any other type of borrowing, it’s important to fully understand the repayment terms of a student loan, and your ability to meet those terms, before you take it on.

This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc.  © 2014 ConsumerInfo.com, Inc.  All rights reserved.

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