10 Ways to Pay for College If You Don’t Have Big Bucks Set Aside

Whether your child is entering college this year or several years from now, college costs are on almost every parent’s mind. If you don’t have big bucks set aside, either in savings or a 529 plan, what can you do? This is a challenge many families face.

A solid strategy—or combination of strategies—can get your child to the graduation podium. Here are 10 options, updated with current rules and some of my personal financial planning perspective.

1. Use Your Own Savings and Investments

The most straightforward approach is to pay from your existing resources. This could be your monthly cash flow, savings accounts, or investment portfolio. It’s the simplest and often the most cost-effective solution.

2. Encourage Grandparents and Other Family Members to Contribute

This is a fantastic and tax-savvy option. Here’s what you need to know about the gift tax rules:

• Unlimited Exclusion for Direct Tuition Payments: Anyone can pay your child’s tuition directly to the school with an unlimited exclusion from gift tax. This is the gold standard for tax-free gifting.
• Annual Gift Tax Exclusion: For costs such as room, board, and books, the usual annual gift tax exclusion applies. The person making the gift can give up to a certain amount per year to as many people as they wish without it counting against their lifetime gift tax exclusion. The annual exclusion amount is $19,000 for 2025.

3. Take Out Student Loans

Student loans are a common and necessary tool for many families. Your child should first apply for federal student aid by filling out the Free Application for Federal Student Aid. They may qualify for subsidized loans, where the government pays the interest while they are in school, or for unsubsidized loans, which accrue interest immediately.

Many loan programs offer forgiveness or cancellation if the student works in a qualifying field (such as public service or certain medical professions) for a specific period. These programs can be a great benefit, but they often require careful planning and a long-term commitment.

4. Gift and Sell Appreciated Assets

Giving appreciated stock or mutual funds to your child can be a smart move. When they sell the assets, their lower tax bracket may result in little or no capital gains tax on the sale. This is a great way to “shift” the tax liability to a person in a lower bracket.

5. Have Your Child Take a Part-Time Job

Between summer jobs and part-time work during school, your student can earn significant funds to go toward college expenses.

6. Apply for Scholarships

Be sure to check out available scholarships offered by universities as well as private scholarships. Many private scholarships have little to no competition just because potential applicants are unaware of their existence. Federal Student Aid has more information about finding and applying for scholarships.

7. Consider Community College

Two years at a community college can greatly reduce the cost of a bachelor’s degree. It can also provide a valuable transition between high school and university.

8. Borrow Against Your Home Equity

This can be a financially attractive option, as a home equity line of credit typically offers lower interest rates than personal loans. Although home equity interest is generally not tax-deductible, there could be a workaround to get the tax benefit.

Interest on home equity loans is only deductible if the loan is used to “buy, build, or substantially improve” the home. Total borrowing cannot exceed $750,000 (or $1 million if you purchased your home before Dec. 16, 2017). So, if you did recent remodeling or plan to improve your home (within these limits), you could get a heloc to pay for the improvements and use other money for college costs. This would make the heloc interest deductible.

9. Borrow Against Your Retirement Accounts

Many company 401(k) plans allow you to borrow from your account. The main advantage is that you are essentially paying interest to yourself. However, if you leave your job, the loan is often due immediately, and if you can’t repay it, the outstanding balance is treated as an early withdrawal subject to taxes and penalties.

10. Use Funds From Your Retirement Accounts

You can withdraw funds from your traditional or Roth IRA to pay for qualified higher education expenses without incurring the 10% early withdrawal penalty. The distribution is still subject to ordinary income tax.

Unlike IRAs, withdrawals from 401(k)s and similar plans are generally subject to both income tax and the 10% penalty if you are under age 59½, even if used for college.

My Two Cents: Don’t Sacrifice Your Retirement to Pay for College

Paying for your child’s college education is a lofty goal, but I firmly believe that your retirement funding should take priority. You can get a loan for college, but you can’t get a loan for retirement. For this reason, I typically advise against borrowing from or withdrawing from retirement accounts unless absolutely necessary.

The best strategy often involves a combination of methods, from direct payments and gifts to student loans. Planning is key to finding the right mix that supports your child’s education without jeopardizing your own financial future.

Please consult with your tax or financial advisor for advice tailored to your specific situation.