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Key takeaways:
- College comes with a cost, and it's important to have a plan in place to finance your child's education.
- Families usually rely on a mix of savings, grants, public loans, and private loans.
- Learn more about these different options and how Power Financial Credit Union can help you plan for college funding.
The cost of a college education today is comparable to buying a new car every year or, in some parts of the country, almost as much as purchasing a home. While higher education is invaluable for many careers and ensures a higher income over a lifetime, affording college is one of the most significant financial challenges parents and students face.
It’s important to remember that credit unions can play a vital role in providing financial solutions to pay for college, from savings plans to the student loans Florida families need.
How Much Does College Cost on Average?
The cost of a college or university education can vary a lot:
- A year of tuition can cost $3,000 at a community college and up to $38,000 at a private university.
- On top of covering tuition, you should plan for things like living expenses and transportation.
- There are strategies you can use to reduce the cost of attending college, from living with roommates to taking advantage of Florida’s Dual Enrollment program to complete college credit in high school.
- You should also complete the FAFSA each year to determine eligibility for federal aid, grants, work-study, and federal student loans.
On average, families with a child in college are spending a little over $34,000 a year on higher education. Read our blog on college costs for a more detailed breakdown of what to expect.
How Do Families Pay for College?
Families typically use a mix of different methods to finance their child’s education:
- Saving with 529 plans and Coverdell Education Savings accounts.
- Having their child work through high school and college, sometimes as part of a work-study program.
- Borrowing money, usually from a mix of private and federal student loans.
- Applying for grants and scholarships through the FAFSA process and other sources.
It’s fine if you don’t have every dollar saved before your child begins college, but having a plan in place is important.
How Does the FAFSA Work?
The Free Application for Federal Student Aid (FAFSA) is the starting point for most college financial aid.
Your child should complete it for every year they attend college or university. Submit it as early as possible each year and check the deadlines set by the student’s school and the State of Florida. If you’re not sure how to navigate the FAFSA process, your child’s guidance counselor should be able to help.
Depending on your family’s income, your child may qualify for different forms of aid.
| Types of asistance | How it helps | Must it be repaid? |
| Federal grants | Need-based funding, such as the Federal Pell Grant, that can help pay qualifying education expenses | Usually no |
| State and college aid | Some states and colleges us FAFSA information to award institutional grants, need-based aid and certain scholarships | Usually no |
| Federal Work-Study | Part-time employment that allows eligible students to earn money for education and living expenses | No, students earn wages for hours worked |
| Federal Direct Loans | Student loans with federal terms and borrower protections; may include subsidized and unsubsidized loans | Yes, with interest |
| Parent PLUS Loans | Federal loans that eligible parents of dependent undergraduate students may use to help cover education costs | Yes, with interest |
Note that grants and other forms of state aid (outside of loans) have to be repaid if the student breaks the rules of the program or misuses the funds.
Saving for College: What Are the Options?
FAFSA may not cover the entire cost of attending college. We recommend looking into the following options to save for your child’s education.
Coverdell Education Savings Accounts
A Coverdell account helps you save and pay for educational expenses from Kindergarten to grad school. There are no minimum deposits and funds grow tax-free. However, contributions are limited to $2,000 per year per child and are only allowed until the child turns 18. Modified adjusted gross income (MAGI) limits apply.
529 Plans
With a 529 plan, you can put money aside for college and let it grow tax-deferred. Withdrawals are tax-free as long as you use the money for qualified educational expenses. In Florida, there are two main types of 529 plans available:
- 529 prepaid tuition plans let you pay for tuition ahead of time, which means you’re locking in the current rate and protecting yourself from future tuition rate hikes. Florida Prepaid 529 Plans allow you to use these funds in and out of state, and you may be able to cover other college-related expenses with these plans.
- You can also open a 529 college savings plan and invest your money in mutual funds, ETFs, and other investment vehicles. These plans are typically more flexible and allow you to use the money for tuition, fees, room and board, and even student loan repayment in some cases.
Note that contributions to 529 plans are treated as gifts and subject to gift tax exclusion limits.
Student Loans: Should You Borrow Money for College?
Borrowing money is a common way to finance a college degree. Student loans can help close the gap after savings, scholarships, grants, and federal aid have been applied.
However, loans should be used carefully. Every dollar borrowed must be repaid with interest, and a student may enter adulthood with a monthly payment before they have established their career or financial independence. Families should borrow only what is needed, explore federal loan options first, and consider the student’s expected income and repayment ability before taking on debt.
Federal Student Loans
Federal student loans are the best option for many students. Payments aren’t due until after you leave school. Interest rates are usually fixed and lower than loans from other sources. There’s no credit check. Repayment plans can be based on your post-school income. Finally, the government may forgive balances, as they have done for many in recent years.
However, federal borrowing limits may not cover the full cost of attendance. Dependent undergraduate students can generally borrow from $5,500 in their first year up to $7,500 per year as upperclassmen, while independent students may qualify for higher limits. Families may need to combine federal loans with savings, scholarships, grants, work income or private student loans to cover a remaining funding gap.
Private Student Loans
Private student loans private student loans from credit unions, banks and other financial institutions can help cover the cost of college. Because private loans are credit-based, students may need a parent or other qualified adult to apply as a cosigner. Interest rates, fees, repayment terms and eligibility requirements vary by lender, and rates may be fixed or variable.
Before borrowing, compare offers carefully and understand the full cost of repayment. Private loans generally do not include the same federal protections, such as income-driven repayment plans or federal loan forgiveness programs, so they are typically best used as a supplemental option rather than your main source of funding for college.
Public Vs. Private Student Loans
| Feature | Federal student loans | Private student loans |
| Lender | U.S. Department of Education | Credit unions, banks, and other private lenders |
| How to apply | Submit the FAFSA | Apply directly with the lender |
| Credit check | Usually not required for Direct Subsidized or Unsubsidized Loans; PLUS Loans generally require one | Usually required |
| Cosigner | Usually not needed for student Direct Loans | Often needed for studens with limited credit history or income |
| Interest rate | Fixed rate set annually by federal law | Fixed or variable rate, usually based on creditworthiness |
| Borrowing limits | Annual and lifetime limits apply | May allow borrowing up to the school's cost of attendance, subject to lender approval |
| Repayment flexibility | May include income-driven repayment, deferment and forbearance options | Varies by lender; protections are generally more limited |
| Forgiveness options | Certain borrowers may qualify for federal forgiveness programs | Generally not available |
| Best use | First borrowing option after grands, scholarships and savings | Supplemental funding when federal aid does not cover the remaining cost |
How Credit Unions Can Help Florida Families Plan for College
A credit union can be a smart partner for college savings and borrowing. As a member-owned organization, credit unions operate a not-for-profit structure, which can mean you’re getting a more competitive rate on your savings and better terms on student loans. Plus, you can count on your local credit union for personalized advice for college planning.If you’re in South Florida, Power Financial Credit Union has several banking products designed to help you prepare for college:
- Coverdell Education Savings accounts with tax advantages.
- Flexible student loans that let you borrow up to $100,000.
- Student checking accounts with no monthly fees.