Getting Smart About Paying for College: A Step-By-Step Guide

by Sarah Mouser, CFP®, CTS™, CES™

Navigating the many facets of paying for college can be challenging. If you have a student approaching college age, there are certain steps you can take to make sure you are saving properly and getting the best deal on their education.

Over the last 30 years, the cost of a college education has soared by more than 500 percent, far outpacing not only the consumer price index but nearly doubling the national surge in medical costs. Throw in plane tickets, room and board, and other expenses, and the annual bill to attend an elite university can easily exceed $200,000 for a four-year program. It’s not just parents who are concerned about paying for college. Studies show that over 60% of grandparents provide some sort of financial aid to grandchildren – and almost half of these grandparents contribute to an education fund.

Many high net-worth individuals wrongly assume their college-bound student won’t qualify for financial aid. But that’s rarely the case. According to, fewer than 4 percent of US households are considered too wealthy to receive assistance of some type. And even these families may be eligible for subsidized loans and other packages.

Keep in mind that college prices are like airline tickets—no one pays the same price. In fact, on average, 70 percent of students do not pay full price for the same college. So, how do you develop a plan to pay for college? What tools are available to support your planning? And how do you know you are getting the best deal?

Paying For College: Let’s Get Started

Step 1: Start Saving Now!

One of the most popular savings vehicles is the 529 plan because of its flexibility and tax advantages. Contributions to these plans often offer tax deductions, and tax-advantaged earnings can be used to pay for qualifying college expenses. With 529 plans, the named beneficiary does not have control over the account, so you can be assured the funds will be used for their intended purpose. 529 plans are low maintenance as many companies offer “set it and forget it” investment options and the flexibility of transferring any unused funds to another beneficiary.

Step 2: Understand What Your College of Choice Will Cost

The true cost of college used to be extremely opaque. However, since 2011, it is federally mandated that every school in the country must have a Net Price Calculator on their website.

The Net Price Calculator is a tool you can use to estimate the total or net price to attend a particular college or university. The net price is the difference between the “sticker” price to attend a specific college, minus any eligible student grants and scholarships. The sticker price listed for the college should include direct charges (tuition and fees, room and board) and indirect costs (books and supplies, transportation and personal expenses).

The Net Price Calculator poses questions about your financial situation, as well as your student’s GPA, activities, and other factors that may qualify you for financial aid. It will give you an estimate of how much money in grants and scholarships the college is likely to award your child. It then subtracts that number from the full cost of attendance to estimate your actual cost.

Keep in mind that not all Net Price Calculators are created equal – some are far more thorough than others in estimating your true cost. Many colleges use The College Board’s Net Price Calculator, one of the more robust tools available. However, whichever one you use, net price calculators can help you decide which colleges you can afford, and can potentially expand your options for affordable colleges.

Step 3: Determine Your Eligibility for Aid

Students and their families are expected to contribute to the cost of college to the extent they are able to do so. The anticipated amount is calculated using a formula called the Expected Family Contribution (EFC), which takes into account your family’s adjusted gross income, taxable investments, and family size. If you are unable to contribute the entire cost of college, financial aid may be available to bridge the gap. The difference between the total cost of college and a family’s EFC is how a student’s financial need is calculated.

Read More: The Expected Family Contribution (EFC) FAQs

There are two main methods used to determine a student’s EFC — the Federal Methodology and the Institutional Methodology. The Federal Methodology is used to calculate a student’s eligibility for federal and state aid, such as Pell grants, and is used by most public universities.

Many private colleges and scholarship programs use the Institutional Methodology to determine eligibility for their own grants and funds. Depending on family circumstances, the two methodologies may compute a different EFC since they are calculated using different factors.

Because each method uses a different set of criteria, it’s important to calculate your EFC using both methods to identify which one is most favorable to your situation. The College Board is a great resource for calculating your EFC and determining which method is employed by each college. You can access their EFC Calculator here.

For those facing the daunting task of financing more than one college education at a time, remember that having more than one family member enrolled in college will increase your eligibility for financial aid.

Step 4: Utilize These Tips to Enhance Your Eligibility

There are a few tips to keep in mind as you prepare to apply for financial aid:

  • Don’t overestimate your income. Be sure to use your adjusted gross income rather than your gross income.
  • If a student has UTMA/UGMA accounts, these could be converted to a savings vehicle, such as a 529 plan, considered to be owned by the parent. It is more favorable for assets to be owned by the parent than the student.
  • Ideally, grandparents should wait until a grandchild has finished applying for financial aid before directly giving them money to help with their education. Distributions from a grandparent-owned 529 plan will be added to a student’s income on the following year’s FAFSA application, which decreases their eligibility for financial aid. If a grandparent-owned 529 plan exists, it is best to either wait until after January 1st of the student’s junior year to take distributions, or to transfer the ownership to a parent. Qualified distributions from a student-owned or parent-owned 529 plan cannot be included in the student’s income on the FAFSA; rather, they are considered an asset, which has a positive impact on eligibility for financial aid.
  • Retirement funds are generally not considered assets by either the Federal Methodology or the Institutional Methodology formulas. You can shelter a considerable portion of your assets by making the maximum contributions to these funds. Retirement plans include IRAs, 401k/403b plans, qualified annuities, etc.
  • Every little bit helps when it comes to paying for college. However, the reality is that private scholarships make up a very small percentage of the financial aid that’s available—less than 10 percent. The largest source of financial aid comes from federal loans and college grants.

Step 5: Consider Applying for Federal Aid—and Don’t be Late!

The FAFSA form stands for Free Application for Federal Student Aid. Even if you don’t believe you will qualify for aid, it is still important to apply. Some financial aid programs require a FAFSA to be completed to make sure students are maximizing their federal aid first. Some colleges also use FAFSA information as a deciding factor for students who are on the borderline for merit scholarships.

In some cases, filing a FAFSA can actually help a student gain admission to the college of their choice. Admissions officers know that statistically, students hoping for financial aid who don’t submit a FAFSA form are less likely to enroll if accepted.

You should submit the FAFSA form as soon as possible after October 1st. Beginning with the 2017-2018 FAFSA, you are required to report income tax information from the previous tax year. For example, for the 2017-2018 filing, you will report income information from your 2015 tax return. View the chart above for more information.

If your income has changed significantly from the previous year, you are still required to use prior year information. After filing the FAFSA, contact the financial aid office at the school you plan to attend. They will have the ability to assess your information and make relevant adjustments.

Most states require the FAFSA to be submitted by March 1st, and some even as early as mid-February. However, we recommend submitting the FAFSA as soon as possible because some aid awards are distributed on a first-come, first-serve basis.

You can obtain a copy by asking a school guidance counselor or by calling 1-800-4-FED-AID. The online version of the form is available at

Step 6: Don’t Assume Private Schools are More Expensive

Finally, you may think that public schools are always more affordable than private schools, but that’s not necessarily the case. About 85 percent of students who attend private colleges don’t pay full price. Private schools are sometimes just as affordable as public schools because they have more money to give away to students through so-called “merit awards.” The average discount for private school tuition is currently about 53 percent—an all-time high!

Once again, The College Board is a great resource to help you determine which schools are more generous than others. A college with a high published price might offer its students a lot of financial aid — so it might actually be cheaper than a college with a low published price.

In the event you don’t qualify for traditional aid packages, there are sources of aid such as unsubsidized Stafford and PLUS loans that are available regardless of need. Applying for financial aid is free, so there is no downside.

I hope this document has helped you better understand your options for financing your student’s higher education. Decades of research has shown it’s one of the best investments you can make.

For more information about paying for college, please contact Sarah Mouser, Director of Financial Planning at or your financial advisor.



Disclosure: A 529 is a college savings plan that allows individuals to save for college on a tax-advantaged basis. Every state offers at least one 529 plan. Before buying a 529 plan, you should inquire about the particular plan and its fees and expenses. You should also consider that certain states offer tax benefits and fee savings to in-state residents. Whether a state tax deduction and/or application fee savings are available depends on your state of residence. For tax advice, consult your tax professional. Non-qualifying distribution earnings are taxable and subject to a 10 percent tax penalty. More information about 529 plans is available in each issuer’s official statement, which should be read carefully before investing.


As seen on September 13, 2017


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