A Guide to Parents Paying for College: Financial Aid, Loans, and Alternatives

For many parents, helping to pay for their children's college education is a top priority. However, rising tuition costs and competing financial goals can present challenges. Whether your child is in high school and getting ready to head off to college or isn't even walking yet, it's never too early to start planning and saving.

In this guide, learn some of the options available to parents to help pay for college, how to balance college costs with other financial goals, and other tips for managing college expenses as a parent.

Options for parents paying for college

Many college savings and payment tools are specifically tailored to students, but several others are available to parents, including 529 savings plans and loans.

Savings

If you're getting a head start on preparing for your child's college expenses, consider setting up a dedicated account to save for that purpose. Any account will do — you can open a high-yield savings account or a taxable brokerage account and start contributing. However, 529 college savings plans are often an even better option.

A 529 savings plan is an investment account designed for college expenses. These plans have tax benefits, including tax-free withdrawals when the money is used for qualified education expenses. While the contributions aren't deductible for federal tax purposes, some states allow you to deduct your 529 contributions.

You can deduct the money you deposit into your 529 plan into mutual funds and other investments to help it grow throughout your child's life until they're ready to use it.

“For families looking to save for college while protecting against market fluctuations, 529 prepaid plans can be an attractive option,” says Joanne Dashiell, chief marketing officer of CollegeWell, a company that created Private College 529 to help families save for college tax-free. “With a prepaid plan, like Private College 529, families can lock in a portion of current tuition costs to reduce expenses when their student goes to college in the future.”

Parent PLUS loans

A parent PLUS loan is a type of Direct PLUS Loan offered by the Department of Education. It's available to parents of dependent undergraduate students enrolled at least half-time in school.

Parent PLUS loans are a bit different from loans for students. To be eligible, you must not have adverse credit, which means not everyone will qualify. Additionally, PLUS loans have higher interest rates than other federal student loans.

However, you can borrow up to your child's cost of attendance (minus any other financial assistance they've received). Additionally, if you request a deferment, you won't have to start making payments until six months after your child leaves school.

Private student loans

Private student loans are an alternative to parent PLUS loans. These loans come from private lenders, like banks and online lenders, rather than the government. Some private lenders offer specific parent student loans to help parents fund their children's education. If not, parents can opt to cosign a student loan for their child.

While there are more options for private student loans, they also come with some downsides. For example, private loan eligibility is based on your credit. If you have bad credit, you may not qualify. These loans also don't come with the same benefits and protections as federal student loans, such as access to income-driven repayment plans and potential loan forgiveness.

Current private student loan rates

Financial aid and scholarships for students

“When colleges prepare a financial aid package for each student, it usually consists of a variety of types of aid, such as grants and scholarships, student work opportunities, and even student loans from multiple sources, including federal, state, and the college or university,” says Dashiell.

Financial aid can help reduce your family's out-of-pocket education costs. Here are some types of aid your child might be offered when they receive their financial aid award letter:

• Grants: Grants are a type of gift aid, meaning they don't have to be repaid. Most grants are need-based, meaning your child can only qualify if your family can demonstrate financial need.
• Work-study: Work-study allows students to get a part-time job, often on campus, to help pay for tuition and other education expenses. Work-study is need-based and is dependent on your child applying for and getting an eligible job.
• Student loans: Federal student loans are available to most students regardless of their credit, though subsidized loans are need-based. Federal student loans typically don't require repayment until 6 months after your child leaves school.

“When comparing financial aid award letters from multiple colleges, families should not only look at the total financial aid awarded, but compare the net cost of each college side by side since each college has a different ‘sticker’ price,” advises Dashiell.

In addition to federal aid, you can also encourage your child to apply for private scholarships and grants. Scholarships are often merit-based rather than need-based, meaning your child could qualify no matter what your family's income is. Many types of organizations offer scholarships, including nonprofit organizations, companies, and colleges and universities.

Balancing college costs with other financial goals

One of the greatest challenges of saving for college is balancing it with other financial priorities — most notably, retirement. When finding the right balance, experts often recommend prioritizing your retirement savings above everything else.

“It's natural for parents to want to help their child avoid debt, but I typically advise parents not to sacrifice their own retirement goals for college savings,” says John Foote, founder of the financial planning firm Modoo Strategy and a certified student loan professional (CSLP). “Running out of money in retirement is a bigger problem than taking out extra student loans.”

You'll hear many financial advisers say that there are loans for college, but there are no loans for retirement.

If you aren't sure how to allocate your savings between retirement and college, here's a quick guide:

1. Determine your retirement savings needs: You can meet with a financial planner or use an online calculator to figure out how much you need for retirement.
2. Set up retirement contributions: Make sure you're saving enough each month to reach your ultimate retirement savings goal.
3. Put the rest toward college: If there's anything left after making your retirement contributions, you can put that toward your child's college education.

Of course, you'll likely have other financial priorities along the way, including building an emergency fund or making a down payment on a house. You can approach these goals similarly: Identify the dollar amount you need to save to reach your goals, then put the rest toward college savings.

Alternatives to paying for college out of pocket

For many parents, paying for college out of pocket simply isn't an option. However, there are other options that can help alleviate some of the financial burden.

First, you may want to encourage your child to get a part-time job, whether it's in high school, college, over summer breaks, or all of the above. While they almost certainly won't be able to cover their full tuition that way, it can make a difference.

Next, consider whether private student loans are a good idea. If your child doesn't qualify for enough federal loans to cover their entire tuition, they can consider private loans to help make up the difference (though they may need you to cosign their loans, depending on their credit).

Finally, think outside the box to see what other tuition assistance might be available.

“As companies search for ways to attract and retain young workers, many are adding and expanding tuition assistance programs so their workers can go to college,” says Laura Newell-McLaughlin, executive vice president of higher education and K-12 at Transact Campus.

Newell-McLaughlin pointed to a 2022 survey by SHRM that found that an impressive 48% of employers offer undergraduate or graduate tuition assistance as a benefit. This means that students can consider finding a job that offers this type of benefit and then use it to reduce their family contribution toward their college expenses.

Tips for managing college expenses as a parent

The cost of college is one of the greatest financial burdens for families today. If you have a child heading off to college, whether it's in six months or 18 years, it's important to be prepared. Here are some tips:

Discuss expectations up front

Sit your child down and discuss your expectations for how financial responsibilities will be divided when it comes to paying for college. Be honest about what you can afford to contribute and what that likely means for them.

Having this conversation as early as possible will give them the opportunity to increase their own contribution. If your contribution will be small, consider helping them research more cost-effective options, like community college, scholarships, and a part-time job in high school.

Help your child create a budget

Your child's college costs won't be limited to tuition. They'll also have other living costs, including room and board (whether on campus or in their own apartment), books, supplies, and transportation. Sit down together and create a budget to see what their monthly spending in school might look like and how they'll cover it.

Consider college payment plans

Some colleges and universities offer payment plans to help families spread the cost of college over the entire school year rather than paying the entire bill up front. These payment plans may differ from school to school, and you can learn more by contacting the school's financial aid office.

No contribution is too small

As a parent, it's easy to beat yourself up if you can't afford to send your child to college. The good news is that even the smallest bit can help, according to Newell-McLaughlin. Whether it's making small college savings deposits while your child is growing up or helping them buy groceries for their college apartment, small contributions make a difference.

“It is never too late to start saving for college,” says Newell-McLaughlin. “Even $20 a week can grow over time to be a significant contribution.”