Paying for college for your children or yourself? Top considerations

Three students listen to a class lecture.

Here’s what to keep in mind for potentially offsetting or reducing those costs, even as education expenses continue to climb.

Maybe you’re thinking about paying for college for your kids — or even yourself if you’re exploring new opportunities as we emerge from the pandemic. What’s likely on your mind: How to cover those costs, and potentially how to reduce them. And for good reason. According to U.S. News and World Report, the cost of in-state tuition at public national universities has increased 212% over the last 20 years.1

So where to start? Tracy Green, CFP®, planning and life events specialist at Wells Fargo Advisors, outlines her top considerations when it comes to paying for college — including what to know to potentially offset some of those costs — whether for your kids, your second act, or both.

1. Create a 529 college savings plan

If you still have multiple years before your child enters college, consider a 529 college savings plan, a widely used investment option, says Green.

The after-tax dollars you contribute to one of these plans have the potential to grow tax-free. And, as long as you use the withdrawals to pay for qualified higher education expenses for the beneficiary (which can be any eligible family member, including yourself), the account’s earnings are also potentially tax-free.

Benefits of a 529 plan include:

  • Potential tax-deferred growth and tax-free withdrawal.
  • Ability to change beneficiaries — a parent or another eligible family member can become a beneficiary.
  • Ability to roll into an Achieving a Better Life Experience (ABLE) account if the beneficiary is or becomes disabled.
  • Not limited to your direct descendants, meaning you can use this for a step-child, for example.
  • Offers tax-free use for qualified higher education expenses as well as expenses for registered apprenticeship programs; up to $10,000 per year per beneficiary for K-12 tuition; and up to $10,000 lifetime limit each for qualified student loan repayments for designated beneficiary or siblings.

Green says most states offer 529 plans and you are free to choose any state’s plan.  However, it’s essential to understand any specific state benefits, fees and cost structure associated with your plan.

  • Some states include a state income tax benefit; some do not.
  • Some plans have low investment fees, others can have significantly higher fees.
  • Some plans have more investment options than others.

2. Plan for how to pay for college expenses

The rising costs of college underscore why it’s important for families to communicate clearly about expectations and plans. That includes whether you’re discussing your plans with your spouse or talking to your children about costs and how to pay for those expenses.

Today could be an important time to have practical discussions about expectations and finances, whether it’s for your kids or yourself.

  • What are your — and their — educational and financial expectations?
  • Are you supporting the full college experience, including tuition, books, and materials; room and board; and incidental expenses?
  • Do you expect your child to earn some of the money to cover those costs?

3. Apply for merit-based and institutional aid

Your family doesn’t necessarily have to prove financial need for your children to be awarded a scholarship, a grant, or any other merit-based award or institutional aid. Research the different types of scholarships or institutional aid available — there are options available for adults returning to school, too. Many applications are available online, and some awards are valid at any college. Also keep in mind filling out a Free Application for Federal Student Aid (FAFSA) form is typically required for merit-based and need-based aid. You’ll receive a summary report after you apply, and this data will inform financial aid offers from the colleges or universities your child has been accepted to.

To boost the chances of your child receiving a merit-based award from a specific school, consider applying to a few colleges where academic achievements in high school would be likely to place your child in the top quartile of applicants. Your child may qualify based on a combination of high school grades, ACT/SAT scores, or extracurricular activities such as leadership roles and volunteerism. Many merit scholarships are granted based on special talents a candidate may exhibit in the arts or athletics, says Green.

4. Consider federal student loans

Your child may be eligible for unsubsidized federal student loans, even if they do not qualify for a subsidized federal student loan. These loans, made directly from the federal government, typically carry low interest rates and feature long payback periods. Filing the FAFSA helps you determine your eligibility for a direct federal loan or determine if you want to seek out a private student loan.

“Having your child take out a small student loan to help pay for some of the expenses can be an efficient way for them to take on some responsibility and start building financial skills,” says Green.

5. Explore other options

Depending on your unique circumstances, you may be able to find other effective savings paths. For example, if you own a business, you could hire your child and contribute an amount equal to their annual earned income to a Roth IRA held in your child’s name. After-tax contributions to a Roth generally have the potential to grow tax-free, and you could later withdraw the contributions for college. Earnings could remain in the account for your child’s eventual retirement. Keep in mind that IRS rules for Roth IRA withdrawals need to be followed to avoid taxes and penalties.

If your child receives financial gifts from grandparents or other family members that you’d like to earmark for college, you could also talk to an advisor about whether to create an annual gift trust, minor’s trust, or Uniform Transfer to Minors Act (UTMA) account. You also may be able to contribute to a Coverdell education savings account to finance a beneficiary’s qualified education expenses based on certain criteria.

More tips to help boost your savings

Overall, reducing taxes on your investments to make more of your money available for college expenses is a vital part of college-payment planning. However, taxes should never be your only consideration.

“In some cases, you may choose to invest in a taxable account which may offer more investment choices or provide additional savings to pay for expenses such as transportation and personal expenses, which are not considered qualified for a 529 plan distribution”, says Green.

The bottom line is that there are many ways of paying for college for yourself or your kids. A financial advisor can help you sort through the options that best meet your needs.


1 “20 Years of Tuition Growth at National Universities,” U.S. News & World Report, Sept. 17, 2020.
Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.