Saving for college: How will you pay for ‘the gap’?

My brother, bouncing his baby on his knee, said to me, “I won’t pay for my kid’s college tuition. I want them to take ownership of their college experience.” He went on to compare the lessons of hard work his kids will receive, to the process of a caterpillar breaking through a cocoon: It takes a lot of struggle, but that struggle is necessary in order to gain enough strength to be able to live as a butterfly.

In response, I made three points.

First, I urged him to consider reframing his statement from what “I won’t do for my kids” to “This is how I’m willing to help my kids get started on the right track.” Paying for college is not an all-or-nothing choice. I think a parent can do a lot of things other than pay the full freight of their child’s college experience: encouraging them to work when they can and save for college, start at a community college, attend an in-state college, and finally, understand where money may be available to help them pay for college. It is only fair that the kids know how they will be involved with paying for college before it gets too close.

I’m not saying parents are obligated to pay for their kids’ college experience. But consider that the Free Application for Federal Student Aid (FAFSA), the literal starting point for any financial aid for students, relies heavily on parents’ financial information, so there is obvious expectation that parents may help. In fact, FASFA is used to calculate the “Expected Family Contribution” (EFC), which is a number that colleges use to determine how much financial aid a student qualifies for if they went to the school.

Second, I told my brother that he may feel differently when his children are older. There are endless variables that could affect a parent’s decision in the time it takes to raise their kids to age 18. A worst-case scenario is you end up with a different perspective, but nothing saved.

Third, I recommended saving at least enough to cover “the gap.” What did I mean by that? Colleges advertise a “sticker price” that equals the full rate for tuition and fees. For the 2019-2020 year, the average tuition and fees at an in-state public college was $10,116 a year, and for private colleges it was $36,801.1 The “net price” is the amount that a family pays after financial aid and scholarships. Net price is so important that colleges participating in federal financial aid programs are required to supply families with a net price calculator on their website.

The irony is that many families expect to pay for college with need-based financial aid. But the amount they are awarded is based on what the college estimates they can afford. Some middle and upper-middle class families find that what the college expects them to contribute is more than what they can afford. I’ve heard the statement “too poor to pay for college, too rich to get financial aid.” Loans may become the fallback option to cover “the gap” between what they are expected to pay and what they can pay. And now that butterfly is starting life with a cocoon still on its back.

Types of financial aid

There are a variety of financial aid sources from federal, state, school, and private sources to help pay for college.

A grant is a type of financial aid that doesn’t have to be repaid (unless the student fails to complete the degree or any service obligation of the grant). There are several federal grants available, including Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Teacher Education Assistance for College and Higher Education (TEACH) Grants, and Iraq and Afghanistan Service Grants.

The maximum Federal Pell Grant Award, the most common grant for college undergraduates through FAFSA for the 2019-20 award year, was $6,195.2 But remember the average tuition and fees at an in-state public college was $10,116 for the 2019-2020 year. You can see “the gap” emerging.

There are other potential sources of financial aid for the student. Many schools also offer financial aid from their own grant and/or scholarship funds, and many nonprofit and private organizations offer scholarships to help students pay for college. These may be based on academic merit, talent, or a particular focus of study. The Federal Work-Study Program allows students to earn money to pay for college by working part-time while attending classes. There are also special financial aid programs or additional financial aid eligibility for serving in the military or for being the spouse or child of a veteran.

Finally, a student loan allows a student to borrow money for college. There are a handful of loan options available. While federal student loans come with low interest rates, the college limits how much a student can borrow. Parents can borrow additional money from the federal government through a PLUS loan, but at much higher rates. Private loans come at an even higher rate.

Unfortunately, many people take out student loans without a clear understanding of the consequences. Obtaining a loan, whether by the student or the family, is relatively easy. Be aware student loan debt in America has topped $1.5 trillion in recent years, making it the largest type of consumer debt other than mortgages. The average student loan borrower graduates with nearly $30,000 in debt3 — which may make some caterpillars decide to never leave the cocoon.

Plan how to pay for college before the children get ready to leave their cocoon. A 529 plan may be a great way to save for higher education costs. Your earnings in the account won’t be taxed as they grow and when the child is ready to start school, the withdrawals won’t be taxed if they’re used for qualified education expenses like tuition, room and board, and textbooks. With the help of a 529 plan, a debt-free education doesn’t have to be out of reach. It’s never too early — or too late — to create a legacy for the next generation.


1 US News & World Report, “See the Average College Tuition in 2019-2020,” Sept. 9, 2019

2 Source:

3 Source: Center for Responsible Lending

Important information

Blog header image: Studio Firma/ Stocksy

Earnings on non-qualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. Tax and other benefits are contingent on meeting other requirements and certain withdrawals are subject to federal, state, and local taxes.

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