How (and How Much) to Pay for College

Rising college costs and shrinking financial aid are causing families to panic over how they or their children will pay for a college education. Our mission is to make families more knowledgeable about the process to make an informed college buying decision.

This system will help guide you through the college funding process and how much you are pre-qualified to spend on college over the four years – down to the penny.

What is the first thing you do when you want to buy a house? You go to a bank and get pre-approved for a loan which dictates the cost of a house you can afford, not the cost of a house we want. Why don’t we do this when our children select a college? (i.e., “I’ve always wanted to go to .”)  Just because our children have always wanted to go to a certain college doesn’t mean they necessarily should. If their grades are in line with that college and they’ve sought out scholarships and other available financial aid to make it a reality, then, by all means, they should go to the college they want.  However, if they’re signing up for $250,000+ of college debt for a bachelor’s degree in business, this is probably not the right decision for you or their financial future.

Paying for College can be broken down into five different parts:

  1. Parent Resources
  2. Parent Plus Loans
  3. Student Resources
  4. Student Loans
  5. Other Help

Parent Resources

This section consists of any 529*, or other education savings account that the parents already have set aside to help pay for college (tip: this should be done from birth and increased as finances allow).

This section also considers the American Opportunity Tax Credit ($2,500/year) that most parents will receive if they spend $4,000 out-of-pocket on college expenses. This means that the $4,000 is really only costing you $1,500 a year when you receive the tax credit. This is a great deal for parents; I recommend everyone who is eligible should take advantage of this.

  • This means that you should rarely pay for 100% of your college expenses each year, strictly from student loans and 529 assets, unless you plan on paying for 100% of your college expenses out of pocket.
  • A parent can claim a tax credit for 100% of the first $2,000 and 25% of the next $2,000, of a dependent child’s college tuition and related expenses (including course materials), for a maximum of $2,500 annual tax credit per child. Students can claim the credit only if they are not claimed as dependent on another person’s tax return. The credit is phased out for incomes between $80,000 and $90,000 (between $160,000 and $180,000 for married taxpayers filing jointly).

Finally, it also consists of any extra monthly cash flow you think you would be able to afford to pay.  For example, when your children head off to college, you’ll no longer be paying for expensive sports or other extracurricular activities.

Parent Plus Loans

This section is for parents who want to take out loans to help pay for college for their children. The loans are in the parent’s name (not the student), and you, the parent, are responsible for paying the loan back.

  • Parents can apply for the maximum cost of college attendance minus any financial aid the student is receiving. The interest rate on the Parent PLUS Loan is a fixed rate of 7.54% (as of 7/1/2022); however, the interest rate changes each year on July 1 for the new school year.

Student Resources

This section is for the resources a student can use to help pay for college. It could be some savings they have and want to use, scholarships they have received, a work-study program, or a job they are willing to do while attending college.

Excelsior Scholarship

If you are a resident of New York State, you may have heard of the Excelsior Scholarship.  In combination with other student financial aid programs, this scholarship will cover tuition (not room and board, fees, textbooks, and other college costs) at all SUNY and CUNY schools. To be eligible, you must:

While this sounds great, it is important to note that this only covers tuition. To give you an example, for 2017-2018 to attend the University at Buffalo (UB), the total cost of attendance for an NYS resident was $26,230, with only $6,670 of that being tuition. That means if someone on the Excelsior Scholarship attended UB, they would still have to pay about $20,000 a year!


  • This is a federal program providing part-time jobs for undergraduate and graduate college students with financial needs.
  • The financial aid award letter will include work-study if you qualify, but you are not guaranteed a job. The college may not have enough openings for everyone.

Tips for taking advantage of work-study:

  • Fill out the FAFSA as soon as possible each year. Early applicants have a better chance of scooping up available funds.
  • Visit the financial aid office first thing each semester to find out about available positions and the process for applying for them.

Why should a student choose work-study rather than regular employment?

  • Wages earned from work-study are NOT included in student earnings assessed by the FAFSA. Regular employment wages will be subject to a 50% assessment after the first $6,350.
  • In addition, colleges consider your classes when scheduling your hours, whereas a regular employer may not. Finally, jobs on campus will save on commute time and costs.

Student Loans

This section is for loans that the student is willing to take out to attend college. Students can take out loans in two different methods:

Public Student Loans (Direct)

  • I believe these are the best loans available for students. Unless you’re in a position to pay all four years out of pocket or from a 529 college savings account, be sure to take advantage of these loans each year.
  • To be eligible for these loans, you must complete the Free Application for Federal Student Aid (FAFSA)
  • You can borrow $5,500 the first year, $6,500 the second year, and $7,500 each year after up to a total of $27,000
  • If you demonstrate a financial need (according to the FAFSA), some of these loans may be subsidized (interest-free while in school)
  • These loans come with potential loan forgiveness options and more favorable payment options.
  • Congress sets the interest rate, so individual credit scores are never a factor.
  • The current interest rate on public student loans is a fixed rate of 4.99% (as of 7/1/2022); however, the interest rate changes each year on July 1 for the new school year.

Private Student Loans

  • This interest rate is determined by the student or of their co-signer’s credit score.
  • If the student were to pass away, these loans are often not forgiven at death, so the co-signer would still be liable to pay off the loan balance.
  • If you decide to co-sign on student loans, it is often a good idea to take out a small term life insurance policy on the student to offset the cost of outstanding loans following their death.
A good rule of thumb is never to borrow more than your expected first year’s salary after graduation. If a student majoring in education (expected starting salary around $36,000) and a student majoring in computer science (expected starting salary around $71,000) attend the same school, the education graduate should borrow less as their expected salary is about half of a computer science graduate.

Other Help

This section is for financial help the student may receive from grandparents or another family member. If you are receiving the aid, you will want to wait to receive/use this money until after the last FAFSA is filed, which is after the sophomore year.

Begin Planning Now

Families have to be proactive and not reactive. Do NOT wait until a student is a high school junior or senior and think you’ll have plenty of time to plan. Besides the obvious lack of time to build savings, families need to know about college costs and what their families can afford long before they start those visits to campuses.

Now that you have your four-year amount, you can start to look at colleges in this budget. For example, if your four-year amount is $80,000, you know you should be looking at schools with a total cost of $20,000/year. Just because your student can get into their dream school does not mean you can afford it. I would love to drive a Ferrari, but it isn’t in my budget.

Hypothetical Example:

  • Let’s say a family has saved $30,000, and tuition is $15,000 per year. Example #1 happens all too often with families using up all their savings in the first two years and having to take out private loans for the last two years. Example #2 shows a smarter way to spread out the savings and take advantage of federal loans, which are capped at a certain amount each year.

                                                                   For illustrative purposes only.


*Participation in a 529 College Savings Plan (529 Plan) does not guarantee that contributions and investment return on contributions, if any, will be adequate to cover future tuition and other education expenses or that a beneficiary will be admitted to or permitted to continue to attend an educational institution.  Contributors to the program assume all investment risk, including potential loss of principal and liability for penalties such as those levied for non-educational withdrawals.

An investor should consider, before investing, whether the investor’s or designated beneficiary’s home state offers any favorable state tax treatment or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program.   Consult with your financial, tax or other adviser to learn more about how state-based benefits (including any limitations) would apply to your specific circumstances. You may also wish to contact your home state or any other 529 college savings plan to learn more about the features, benefits and limitations of that state’s 529 college savings plan. Furthermore, the Tax Cuts and Jobs Act that was signed into law on December 22, 2017 allows for up to $10,000 a year per beneficiary in tax free distributions from a 529 Plan if used for tuition incurred for enrollment or attendance at a public, private, or religious elementary or secondary school. Check with your state’s guidelines prior to withdrawing the funds.

For more complete information, including a description of fees, expenses and risks, see the offering statement or program description.

None of the information in this document should be considered tax advice. You should consult your tax advisor for information concerning you individual situation.