Getty Images Paying for higher education has become one of the most challenging tasks facing students and parents in America. The average cost at a private four-year university for tuition, fees, and room and board rose in 2012-2013 to more than $39,500, according to the College Board. Costs are up more than 25 percent in the past decade even after adjusting for overall rates of inflation. And while public schools are still cheaper, their tuition has risen at an even faster rate — 45 percent beyond inflation.
Increasingly, families have relied on student loans to help bridge the gap between costs and their financial resources, with outstanding student debt almost four times as much it was in early 2004, according to figures from the Federal Reserve Bank of New York. And even though it looks as if Congress has agreed on a plan to hold down interest rates on new student loans — for now — taking on more and more debt isn’t the ideal solution to the higher education price crisis.
But panicking isn’t necessary either. To get a better handle on how you and your child can pay for his education, start out by trying these three simple strategies:
1. Look into college savings plans you can use to put money aside for education while taking advantage of favorable tax and financial-aid rules. 529 plans and Coverdell ESAs give you tax-free growth of your money if you use it for educational expenses, and they’re treated as parental assets for financial aid purposes, leaving your child potentially eligible for more of other kinds of aid.
2. As your child approaches college age, compare the costs of prospective schools with the educational benefits to find the best fit for your child. What you pay for a given school doesn’t always match up with financial prospects after graduation, and especially if your child already has a planned career path in mind, it’s smart to talk to employers in the industry to find out which schools have the most useful programs to prepare students for real-world professional work.
3. If your child is already in college, learn how to read your college financial aid letter to understand exactly what the school is offering. With calculations of your expected family contribution and separate line items for scholarships and grants as well as various types of government and private loans, you still have latitude to come up with alternatives of your own that might be better tailored to your situation.
With total college costs eclipsing the $100,000 mark for many students, paying for education can seem like an insurmountable challenge. But with these simple steps, you can start to get control of your financial situation and make paying for college much more manageable.
You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.