This content is provided courtesy of USAA.

With college costs continuing to rise, you probably haven’t saved enough to foot the bill for a higher education. According to a college cost calculator on collegeboard.org, the price tag for four years at a public institution is $85,788. For a private college or university, the amount almost doubles to $168,896.

That’s why, says Scott Halliwell, CERTIFIED FINANCIAL PLANNER™ practitioner with USAA, “It pays to explore all of your options to fund what is certainly a major investment, no matter what you’ve saved for college.”

The cost of college keeps going up, he adds, by 5% to 8% every year.
But don’t let those figures discourage you from pursuing a degree. As J.J. Montanaro, CERTIFIED FINANCIAL PLANNER™ practitioner with USAA, points out, “Study after study has shown that education has a dramatic, positive impact on lifetime earnings.”

“But you don’t want to get that education by racking up a boatload of student loan debt,” he adds. “To that end, it pays to be creative.”
Here’s a look at six options to help cover the cost of college, along with the pros and cons of each.

1. Find Free Money

Whether you’re on your own or living under your parents’ roof, you could be eligible for financial aid.

To start the process, fill out and submit the Free Application for Federal Student Aid. Based on your FAFSA, each college or university you apply to will tell you what types and how much federal aid you qualify for.
Montanaro points out another reason to complete the FAFSA: Some schools also use it to determine your nonfederal aid, which can include state grants and scholarships.

To make the most of such aid, Pam Proctor, an independent college consultant and author of “The College Hook,” suggests applying to 10 to 12 colleges and universities. “When it comes time to make decisions, you will have financial aid packages to compare,” she explains.

Taking the time to find and apply for scholarships and grants also can pay off. Also known as gift aid, this money doesn’t have to be repaid.

QuestBridge is one such opportunity for high-achieving students whose family incomes are less than $60,000. This program gives them the chance to compete for full scholarships at 35 of the country’s leading colleges, including Stanford, Yale, Notre Dame and Amherst, Proctor notes.

In addition to academic-related awards, look for offerings from associations, colleges, religious organizations and foundations that target your demographic or affiliations. As an example, Proctor points to Dollars for Scholars. In communities across the United States, the more than 1,000 volunteer-run Dollars for Scholars programs raise funds, establish endowments and distribute scholarships to worthy students.

Pros
• A portion of your college costs will be paid.
• You can add any scholarship recognition to your résumé.

Cons
• The FAFSA paperwork can seem daunting, though Proctor points out the FAFSA online calculator can give you a head start.
• Finding and applying for grants and scholarships can be confusing and time-consuming.

2. Look for Loans

Although starting your career with debt isn’t ideal, student loans may need to be part of your college financing plan — along with grants, scholarships and part-time wages.

One of the best loan deals is a federal direct loan, which can be subsidized or unsubsidized, depending on your financial need. With a subsidized loan, the government pays the interest while you’re in college.

If you don’t qualify or a federal loan isn’t enough to cover the tab, consider private loans to fill the gap. Generally, student loans from private lenders come with higher interest rates.

Pros
• You’ll have money to pay for school.
• You may be able to deduct up to $2,500 in student loan interest. Income limits do apply, so see the IRS Publication 970 for details on this and other tax benefits for education.

Cons
• Since you have to pay back most loans, usually with interest, you’ll begin your career with debt. Last year, the Pew Research Center found that among households headed by individuals younger than 35, a record 40% still owed on their student loans.
• The rate for subsidized Stafford loans was expected to be 3.86% for the 2013-14 academic year, pending legislation working its way toward final congressional approval.
• The government no longer pays interest on direct subsidized loans during the six-month grace period after graduation. Interest on your loan will begin to accrue immediately when you graduate or leave school.
• Graduate and professional students are no longer eligible to receive subsidized loans. However, they still may qualify for up to $20,500 in unsubsidized loans each year.

3. Serve Your Country

Military service can help make your education goals a reality. The Tuition Assistance Program is a powerful incentive for those serving in the military to pursue higher education. Both enlisted members and officers can receive up to $4,500 annually for tuition and fees. Eligibility, service requirements, application processes and restrictions differ among the military branches, National Guard and Reserves.

Another military option is the Post-9/11 GI Bill — an updated version of the World War II-era legislation that may have helped your grandfather settle back into civilian life. This benefit is offered to members of the military who have served at least 90 days on active duty since Sept. 11, 2001. Depending on length of service, the bill pays 40% to 100% of tuition and fees at an in-state public college or university, or up to $19,198.31 at a private or foreign school, with exceptions in some states.

Unlike the Post-9/11 GI Bill, the Montgomery GI Bill requires service members to enroll in the program and pay $100 per month for a year before receiving a monthly education benefit. Reservists have additional requirements to qualify. Benefits vary, but the program provides up to 36 months of education benefits.

You can prepare for military service and pay for college at the same time through ROTC programs. Some college students get their entire tuition tab picked up through ROTC and have an opportunity to serve in the military after they graduate.

Pros
• With the tuition assistance program, most of your tuition and fees are covered.
• Military on-the-job experience may translate into college credit.
In certain situations, the Post-9/11 GI Bill allows transfer of benefits to spouses and children.
• You can use the GI Bills for nondegree programs and other professional training, such as truck driving or EMT certification.
GI Bill benefits are tax-free.
• ROTC programs can result in a full, four-year scholarship.

Cons
• Your studies may be interrupted by military relocations or deployments if you pursue your education while serving.
• The Post-9/11 GI Bill requires specific lengths of service if you want to transfer your benefits to a spouse or child. And as of Aug. 1, 2013, all service members must commit to an additional four years of service to transfer benefits.
• Tuition benefits can expire, so you need to apply for assistance within the specified time frames.

4. Get Help at Work

If you’re employed, look into whether your company offers a tuition-assistance program. Benefits often include payments for undergraduate- or graduate-level tuition, fees, books, supplies and even equipment. Some companies require that your coursework relate to your job.

Pros
• You could earn a bachelor’s or master’s degree paid for, all or in part, by your employer. And the money doesn’t have to go toward a full-degree program. • Additionally, employer contributions are tax-free up to $5,250 annually, according to the IRS. Some companies may offer more toward your degree, though any amount above $5,250 generally would be considered taxable.
• You can study at your own pace, as many employers don’t require full-time enrollment.
• Your new credentials could boost your pay.

Cons
• Some companies require you to maintain a minimum grade-point average and won’t pay the education costs upfront. If you’re laid off, you may end up picking up some of the tab.
• Some employers require you to remain on staff for a certain period of time after you finish your schooling, so make sure you’re happy where you’re working.

5. Consider Community College

Community college may be an affordable way to train for a vocation or set you on the path to a four-year college. “Community colleges can be a great option for smart students who are late bloomers or for those who aspire to elite colleges but can’t bear the financial load,” says Proctor.

She explains that a community college essentially offers two tracks for earning a diploma in two years:
Associate of science degree, which can lead to jobs after graduation in technical and health care fields, including computer information technology, culinary management, early childhood education, criminal justice and dental hygiene.

Associate of arts degree, which prepares you to continue your education at a four-year college. This degree offers core curriculum courses that may transfer.

Pros
• Tuition costs are significantly lower compared to traditional four-year schools. You also can save on room-and-board charges by living at home.
• Community colleges may offer more flexibility to accommodate a work schedule, offering many night and online classes.
• You’ll have time to develop independence, says Proctor, without the intense social and academic pressures of life on a traditional four-year campus.

Cons
• Some courses offered at community colleges may not meet university course requirements. If you plan to pursue a four-year degree, make sure you enroll in courses that are transferable to colleges and universities.
• Commuter life may not appeal to you if you want the complete college-campus experience, including living in a dorm and being at the center of the academic and social action during the week and on weekends.

6. Turn to Family and Friends

Are you comfortable asking for help with tuition or accepting money from generous family members or friends? Make sure any benefactors know about qualified transfers. According to the IRS, this arrangement allows individuals to pay an unlimited amount of tuition directly to a qualified institution of higher learning on your behalf without being subject to the IRS gift tax. The education exclusion allows the donor to help you and avoid a tax burden at the same time. You and the one with the checkbook should consult a tax advisor before entering into this arrangement.

Pros
• Knowing someone is in your corner can motivate you to pursue and complete your degree.
• Your college costs would be reduced.

Cons
• Sometimes such gifts come with strings attached. Make sure you’ll maintain autonomy over your course of study and there are no objectionable expectations before you allow someone to pay your bill.
• It could be hard to depend on regular tuition payments from this source. A change in the donor’s circumstances or a falling out could leave you with a big tuition bill.

More Info to Know

How Much Should You Borrow?
J.J. Montanaro and Scott Halliwell, both CERTIFIED FINANCIAL PLANNER™ practitioners with USAA, recommend that you take the long view when it comes to student loans. “Too many students graduate today with a huge financial burden in the form of student loan payments,” Halliwell points out. Montanaro adds, “Borrow with an eye on how paying back the loans will fit into your overall financial situation once you graduate.”

If you aim for monthly loan payments of no more than 10% of what you expect to make monthly after you graduate, you’ll probably be in good shape. Say an education major can expect to land a teaching job that pays $30,000 a year. With a monthly gross income of $2,500, his or her maximum student loan payments should be around $250 a month.

Montanaro suggests accepting only enough to cover basic educational expenses, resisting the temptation to borrow a little more to afford luxuries out of the reach of a frugal student on a tight budget.

Once you’ve graduated, budget so you make those loan payments by their due dates every month. A sure way to hurt your credit rating is to pay bills late.

Tax Relief?

Uncle Sam also eases the burden of college costs for those who qualify. Consider:

• The American Opportunity Credit, worth up to $2,500 for qualified expenses per eligible student.
• The Lifetime Learning Credit, worth up to $2,000 a year per eligible family.
• The Tuition and Fees Deduction, which reduces taxable income, up to $4,000, by the amount paid to a postsecondary institution.

Income and other restrictions apply. Learn more about these options on irs.gov at the Tax Benefits for Education: Information Center, or discuss them with your tax advisor.

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