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8 ways to split the cost of college with your kids
From planning ahead to last-minute scrambling, you've got options.
1. Set up a 529 plan and have your child cover the rest.
One way to split the costs of college with your children is by using a 529 college savings accounts to save up for your contribution and having them cover the rest.
A 529 plan is a state-sponsored savings account designed to help parents save for a child’s tuition. Like a retirement plan, the money you put into your account isn’t subject to federal or state income tax. In some states, you even get a tax credit for your contributions.
Because the money isn’t taxable, a 529 plan can maximize the amount you’re able to contribute. The longer you build your account, the more you can save — which makes this an ideal option for parents thinking years ahead.
2. Set spending limits for yourself before your kid applies.
Another way to share tuition costs with your children is by setting a limit on how much you’re willing to spend before they weigh schools to apply to. Your kids can use these limits as another way to narrow down their choices.
When comparing schools with your kids, pay special attention to the expected family contribution — or EFC. Some schools use their own formula for how much they expect parents to pay, while others rely on a formula the Department of Education uses to calculate financial aid.
Many list how much parents are typically expected to contribute on their financial aid websites. Know that even schools that cover 100% of financial need often require you to contribute something to your child’s college costs — usually if your total family income is more than $60,000 a year.
If it seems like the EFC of a particular school is out of your budget, talk to your kid about covering part of that cost or looking into more affordable schools.
How does Federal Student Aid calculate EFC?
Federal Student Aid, an office of the Department of Education (DoE), uses a specific formula to calculate your family’s expected contribution. It’s based on the data students submit with their Free Application for Federal Student Aid — or FAFSA — when applying for federal aid. You’re actually subject to multiple formulas, depending on whether the DoE considers your child dependent, independent with a spouse or children or independent without a spouse or children.
These formulas change from year to year. Find a breakdown of the latest EFC formula and worksheets on the Federal Student Aid website.
3. Share the cost with student and parent loans.
Not prepared to cover a large part of your children’s expenses? Split the cost by taking out a parent loan while also having your kids take out their own loans. Or learn about ways to cut down on college expenses.
You have two options when it comes to parent loans: apply for a federal Parent PLUS Loan, which comes with an interest rate currently fixed at 5.3% for all applicants, or look at parent loans offered by private lenders, often offering a wider range of rates.
You can refinance parent loans into your child’s name after they make headway in their career and can afford repayments on their own. You can even refinance federal Parent PLUS Loans.
4. Cosign a loan with your child.
If your kids aren’t eligible for federal student aid, cosigning a private student loan can help you split the cost. You can decide whether to handle or split repayments while your child is in school. And once they’re financially stable enough, they can take over the debt themselves.
Cosigner release vs. refinancing
A cosigner release often allows you to remove your name from the loan while your kid continues repaying at the same rates and terms you originally qualified for. With most lenders, you must prove at least two years of on-time repayments, and your child needs to meet eligibility requirements on their own to qualify.
Refinancing involves your child taking out a new loan in their name, which they then use to pay off the original student loan. This is ideal if your lender doesn’t offer cosigner release, your child wants to switch servicers or they think they can qualify for better rates or terms.
5. Offer to cover two years.
Another way to share the cost? Use whatever means you have to pay for two years of a four-year degree, and leave it up to your children to figure out how to cover the rest.
They might decide to attend a community college to cut down on costs for the years they’re responsible for covering. Or they can look into footing the bill with student loans.
It’s a little like throwing your kid into the deep end to learn how to swim. But they’ll have a better understanding of the value of their education, and could learn important lessons about budgeting that will be useful later in life.
6. Divide the cost into thirds.
With this option, you save up for a third of the cost, take out a loan to cover another third and have your child cover the last third. They can use income from a job, loans, scholarships or any other means of paying for school, as long as they do it themselves.
Dividing the costs this way could be useful if you don’t have the time or means to split the cost in half. It allows you to make sure you’re able to contribute, while also teaching your child about financial responsibility — without as much risk as the two-year method.
7. Have your children apply for federal aid and cover the rest.
Let the DoE do the math, and pay the actual EFC after your child receives federal student aid. This helps them avoid taking out private student loans, which can be expensive and don’t always defer repayments until after graduation.
This option might not be right for everyone, though. The DoE can’t consider every factor in your personal finances when deciding how much you have to contribute, so it’s possible they’ll overlook something big. Don’t commit until you have a ballpark idea of what your EFC will be.
8. Have your kids work while in school and cover what they can’t.
Most schools include career centers that can help connect students with a campus job or employer in the local community. Even as a part-time employee working minimum wage, your children should be able to contribute something toward their educational expenses.
This choice involves a little risk for you, though. There’s no guarantee your children will find a job while they’re in school — or keep it. And even if they do, it could take a while. But it’s a solid way to help your kids build their resume and teach them how to handle money on their own.
There’s no one right way to split the cost of college with your children. The financial situation of each family — and even each child — is as different as the education path they’ll pursue. But involving your kids in their education financing can teach valuable lessons about personal finances without throwing them in the deep end.
You can learn more about your family’s financial aid options in our guide to student loans.
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