How to cut college costs, one dollar at a time

Back to school is an increasingly costly time of year, particularly for families with college-bound children.

A college education is now the second-largest expense an individual is likely to make in a lifetime — right after purchasing a home. Tuition and fees for a four-year private college averaged $35,830 in 2018-19; at four-year, in-state public colleges, it was $10,230, according to the College Board. And that’s not even adding in room and board or other expenses.

These days only about 10% of families pay for the entire cost out of pocket, while everyone else is either borrowing or using a combination of resources, according to Marie O’Malley, senior director of consumer research at Sallie Mae.

In fact, less than half of the cost is covered by income and savings on average, according to Sallie Mae’s “How America Pays for College” report.

Nearly half, or 45%, of parents said they will be able to cover some of their kids’ college expenses, while only one quarter parents said they will be able to cover most of the cost, according to a separate report by T. Rowe Price. About 19% of parents said they will not be able to cover any of the cost of college.

However, it’s still possible to shave some of the expenses, even as September approaches — here’s how.

For starters, saving just a few dollars a week in a 529 college savings account could, over time, cover a good portion of college costs with the added benefit of a tax deduction or credit, depending on the plan.

These state-sponsored savings accounts allow post-tax contributions to grow and be withdrawn tax-free as long as the money is used to pay for qualified education expenses, such as tuition and room and board.

For example, if you put in $10 a week beginning when your child is born, you’ll have nearly $3,000 by the time your child is 5 years old and close to $7,000 when your child is 10.

When it’s time to head to school at age 18, the account could have grown to over $15,000, assuming a 5% annual return.

“Every dollar that you put away is a dollar less that you’ll have to borrow,” said Miron Lulic, the founder and CEO of personal finance site SuperMoney.

Alternatively, with a Roth individual retirement account, savers can make after-tax contributions up to $6,000 a year, and then take tax-free withdrawals down the road. Account holders can also withdraw their contributions at any time — say, to cover college expenses — without taxes or penalties.

There are no age restrictions with a Roth IRA although a child needs to have earned income in order to qualify for a custodial account. The adult is the “custodian” and maintains control of the account and invests on the child’s behalf until they meet the required age, which varies by state but is generally age 18.

A minor must have earned income to be eligible, and the contribution amount cannot exceed the earnings in a given year. For example, if your child earned $1,000 as a camp counselor last summer and that’s the only job they held for the year, then that $1,000 is the most that can be contributed to the account.

Another way to reap big returns from incremental acts is to accumulate “micro-scholarships,” which start small but can pay out up to $2,000 apiece.

To this end, the College Board, the administrator of the SAT and AP exams, is doling out $5 million in scholarships for completing small tasks such as building a college list, taking a practice test and completing the Free Application for Federal Student Aid, or FAFSA. The program is open to all students, starting with the class of 2020.

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Raise.me, a for-profit startup, also offers a way for high school students to earn small tuition grants to help pay for their higher education.

Students accrue these micro-scholarships — some as small as $50 — for school achievements such as making the honor roll, joining a sports team, being part of a club or volunteering.

The average award is $22,500, earned from Raise.me’s more than 225 partner institutions. But first, students must apply, be accepted and enroll in the particular college awarding the money.

Taking Advanced Placement classes in high school — and scoring at least 3 out of 5 on the official exams at the end of the course — can earn students credit hours once they are in college. That means the more A.P. classes that a high-schooler can ace now, the fewer college courses they’ll have to pay for later, according to SuperMoney’s Lulic.

According to the College Board, the average student takes three exams over the course of their high school career. However, with a carefully planned schedule, you could reduce your time in college by an entire semester — as long as the college of your choosing gives credit for that coursework.

If successful, that could save you an average of $13,000 at an in-state college and up to $25,000 at a private school, Lulic said.