College expenses are rising. With the average cost of college now $36,436 per year nationwide, families sometimes are left wondering how they can afford this high price tag. Getting a head start is key, and there are plenty of options for students from saving early to taking out low interest loans to applying for scholarships in order to help pay for college. 

529 college savings plan

A 529 college savings plan is a tax-advantaged investment account designed specifically for education expenses with some big benefits:

• Tax-advantaged growth: The funds you invest in a 529 account grow tax-free, meaning you won’t have to pay federal taxes on the earnings if the money is used for qualified educational expenses.

• State tax benefits: Many states offer their own tax incentives for 529 plan contributions. This can take the form of deductions or credits on your state income tax return, providing an extra layer of savings.

• Flexible use for qualified expenses: Funds from a 529 plan can be used for a variety of qualified education expenses including vocational and technical schools, community colleges and even some international institutions.

Coverdell Education Savings Accounts

Like 529 plans, Coverdell Education Savings Accounts (ESA) are designed to help families save for educational expenses.

• Diverse investment choices: Coverdell ESAs offer a broader spectrum of investment options from stocks and bonds to mutual funds and even real estate investment trusts (REITs).

• Tax-free withdrawals for qualified expenses: While contributions to these accounts are not tax-deductible, when used for qualified expenses, withdrawals from Coverdell ESAs are entirely tax-free.

Grants

Grants are a form of financial aid offered by the federal government, universities and even private organizations. 

• Need-based assistance: Grants are designed to support students whose families demonstrate a genuine financial need. This need-based approach helps level the playing field, enabling students from various economic backgrounds to access education.

• No repayment necessary: Students who receive grants are not obligated to repay the funds.

• Eligibility criteria and limitations: While grants are undeniably beneficial, they come with their own set of challenges. Strict eligibility criteria may include factors such as income levels, academic achievements or specific demographic characteristics. Also, grants might not cover all expenses.

Scholarships

Scholarships are another type of financial aid that students can receive based on academic achievements, talents or specific criteria set by organizations, institutions or companies. Each spring, for example, Spectrum Credit Union awards a David P. Smay Scholarship to multiple students to use toward their college education.

• No repayment required: Like grants, scholarships do not require repayment and can greatly contribute to funding education.

• Limited options: Scholarships are highly competitive, and students need to invest time and effort into researching and applying for suitable opportunities.

Federal student loans

Federal student loans, administered by the U.S. Department of Education, can help bridge the financial gap. However, understanding their nuances is crucial to making informed decisions. 

• Low interest rates and flexibility: Federal student loans come with the advantage of lower interest rates and flexible repayment options compared to many private loans.

• Accessibility: Federal student loans are designed to be accessible to a wide range of students, even those with limited credit history or financial resources.

• Income-driven repayment plans: These plans adjust the monthly loan payment based on the borrower's income and family size. But accumulating debt, even with low-interest federal loans, can have long-term financial implications.

Private student loans

Private student loans are offered by banks, credit unions, and online lenders. They can fill the gap when federal aid and scholarships/grants fall short.

• Diverse repayment terms: Private lenders offer a wide array of repayment terms, ranging from short to long durations. Short-term loans come with higher monthly payments but lower overall interest, while longer-term loans offer reduced monthly payments but accumulate more interest over time.

• Additional perks: Some private lenders offer additional benefits and perks, such as interest rate reductions for on-time payments, principal reductions for graduation or even career counseling services.

• Higher interest rates: Unlike federal student loans, private loans often come with higher interest rates. The precise rate varies based on the borrower's creditworthiness and financial history.