A Simple Way to Pay for College without Student Loans


If you’re in a family of four and making $40,000 per year, chances are good that your children will get grants that will not need to be repaid.  Those making $60,000 or $80,000 per year, however, or who will be making that sort of money by the time their children are ready to attend college, will have more difficulty qualifying for such grants.  Many families in this middle class income bracket, however, and even many in the $100,000-$250,000 income range, never manage to save enough to even pay for the first semester, leaving them at the start of the Freshman year figuring out how to pay for things.  Often, student loans are seen as the only answer.

Student loans may be more insidious than a car loan because at least with a car loan you start to pay right away.  With student loans the balance just grows and grows while your student is off taking classes and living a life beyond her financial means, thanks to the credit available from the loans.  It is only after graduation that the reality sets in.  Suddenly she has a $80,000 loan balance and perhaps a $800 per month loan payment but only makes $2000 take-home at her first job.  She want to get a car and a home, but that student loan is swallowing up the income she needs to do so.

Student loans don’t need to be the norm, however, with just a little planning and foresight by the parents, combined with perhaps a little sweat equity from the students while they are in college.  Here is a simple plan to avoid student loans.

1.  Get a 15-year mortgage.

Instead of getting a 30-year mortgage on your home, opt for the 15-year.  That way when you’re a few years out from your oldest going to college, you’ll be paying off your mortgage, leaving the money you were paying free to direct towards college savings.  With a $1000 per month mortgage payment and three years to save, you could have $36,000 saved up by the time the first child enters the dorms.

2.  Put away $2000 for each child in an educational IRA each year if you can.

You can put away $2000 in an educational IRA for each child each year.  Start this when they are born and direct it into mutual funds and you’ll have maybe $40,000-$60,000 saved by the time they are 18.  And that money will be tax-free as long as the money is used for college expenses.

3.  Look into a 529 plan and have gifts from relatives go into this plan.

State 529 plans are a way to save even more money for college, but they have less flexibility on investment choices and how you can use the money than do educational IRAs,  Still, once you’ve fully funded the educational IRA, they are a great way to save up more.  Other relatives can also contribute, so think about putting some birthday money from aunts and uncles in when the kids are young instead of buying more toys to clutter the room.  Grandparents may also want to contribute.

4.  Save, save, save during the last four years before college.

Once the children enter high school, it will only be a blink of the eye before they are looking at colleges.  Be sure to direct whatever money you have into saving for tuition and room and board.  By this point you don’t really have enough time for investing in stocks, so bank CDs and maybe some bond funds would be your best choices for the money.

5.  Choose a school that fits your financial situation.  This might mean community college for a couple of years.

If you’ve been following this blog for a while and have a million dollars in the bank when the kids are ready for college, you might consider taking a couple hundred thousand dollars and send your children to their dream college with the $50,000 per year price tag.  (Then again, you may not.  See: Would You Rather Go to an Ivy League School, or Have $184,000?)  If you haven’t, you need to get realistic about what you can afford.  Certainly a state school will cut costs dramatically.  Even better, look at community colleges for the first year or two to knock out the basic courses.  Tuition will be a lot less and you can save on room and board by having them live at home.  This also allows them to mature a bit more before being out on their own.

6.  Look at summer jobs and part-time jobs during school.

Summer is a great time to earn a few thousand dollars to help pay expenses during the next school year.  It is also valuable experience, particularly if it is in the field the student is pursuing.  Looking at jobs at the school that have flexibility during finals time and other crunch times are also a good way to earn money to put towards expenses.

7.  Work with your state legislators to stop allowing student loans at state colleges.

One of the reasons that college costs so much is that people are using college loans to pay for schools they could not afford otherwise.  This allows schools to pay essentially retired faculty who don’t teach or contribute to the school, build lavish student centers and workout facilities, and have immaculate grounds.  Colleges could cost a lot less and really should.  One way to bring down the costs is to encourage your state legislators to pass legislation limiting of eliminating the use of student loans for state schools.  This would force colleges to cut costs and bring them back in line with what a middle class family can afford.

Contact me at vtsioriginal@yahoo.com, or leave a comment.

Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.

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