After you see your Expected Family Contribution (EFC), you might be wondering how your family is going to find money to pay your college expenses.
There are basically three strategies for coming up with cash to cover the EFC:
1. Use College Savings
If you have managed to save money in any of the popular college savings plans—529 savings plans, Coverdell Education Savings Accounts, 529 prepaid tuition plans, or Uniform Gifts to Minors Act accounts—then you should begin by using those to pay for your EFC.
2. Pull the Money from Another Savings Vehicle
The second way to find money to cover the EFC is to pull it from other savings accounts. In recent years, more and more parents have been taking money from their IRAs to pay for college costs. In 2014, for example, 7% of parents took money from a retirement fund to pay college expenses, up from 5% in 2013.
If you do raid your IRA for college expenses, you don’t have to pay the 10% early withdrawal penalty that normally applies when pulling money out of an IRA before age 59½. A 401(k) is a bit trickier to pull money from, because you have to demonstrate that you have a financial hardship. You might be able to borrow the money from the 401(k) and repay it with interest.
Keep in mind, however, that many well-known financial advisors—most notably Suze Orman and Dave Ramsey—argue that parents should not use retirement funds to pay for college expenses.
3. Work to Pay for School
The third strategy for finding cash to meet the EFC is to work while going to school.
At the very least, you should consider having your child working during the summer to be able to contribute financially to their college costs. In addition, your child should consider looking for a part-time job during school year. Most college advisors recommend that students work no more than ten to fifteen hours per week during the school year.
There are two main benefits of working while in school:
- Earning money during the school year, you can reduce your reliance on student loans.
- Your child will gain work experience while getting your degree. This can make you stand out in a tough job market.
Bear in mind, however, that your earnings will impact your EFC. Generally speaking, about half of your earnings are credited towards your EFC.
Some people worry that their grades will fall while employed and attending college. Interestingly, however, a recent study shows that students who work part-time tend to get better grades in college. When your child is working and going school, they are forced to really organize their time well.