Updated September 30, 2026
Depending on how old your kids are, you may have ample time to plan ahead, or graduation is on the horizon and the clock is ticking.
Sorting through the process, from 529 plans, to taking out loans, to financial aid from the government or the college, to scholarships, there are so many options.
Taking a step back and looking at the big picture, and then breaking it down into a series of decisions and action steps can reduce stress and help you manage costs.
Reduce Costs Where Possible
If college is around the corner, the first thing to help reduce the cost is to submit the Free Application for Federal Student Aid (FAFSA). Even if you don’t think you’ll qualify, you should submit it. The FAFSA is what qualifies students to receive grants and federal student loans, and many colleges also require it before they will award their own merit and institutional aid. The form produces a number called the Student Aid Index (SAI), which replaced the old Expected Family Contribution starting with the 2024–25 FAFSA. One change worth knowing: the formula no longer gives families a break for having more than one child in college at the same time. If that was part of your plan, it’s worth revisiting.
Applying for scholarships is another way to lower college costs and doing so has never been easier. There are scholarship websites students can use and apply to while they’re still in high school, local businesses may offer scholarships to recent grads, colleges typically offer academic and athletic scholarships. There are many options available. Academic scholarships in particular have no income test, so high-earning families should not assume their student is out of the running.
While a degree from a top-tier school does have its advantages in the workforce, it’s not entirely necessary. The important thing is to find a school that aligns with your budget.
Should You Supplement with Student Loans?
Going to college debt-free is the ideal state, but student loans when used to supplement other sources of funding can take the pressure off both parents and children. Federal loans generally provide lower interest rates than private loans and come with borrower protections private loans don’t, such as income-driven repayment plans and deferment options.
Private loans are issued by organizations such as banks or credit unions and typically have variable interest rates. Federal loans are generally preferred over private loans as payment periods are more borrower-friendly and the lower interest rates can save money over the length of the loan.
For parents with several children to get through college, student loans can bridge the gap during the college years. Once children are out of school and the financial burden is lighter, it’s always possible to use the annual gift tax exclusion to help pay down those loans.
To Save or to Invest?
529 plans let you put money away for college and if the funds are used for qualified education expenses, the withdrawals are not subject to federal income tax. This means that the account can be invested and grow tax-free. They may provide state tax benefits, but these vary from state-to-state. 529 plans don’t have annual contribution limits and contributors to the account can use the gift tax exclusion to avoid paying taxes on the funds. If the 529 plan is owned by a parent (or by a dependent student), the balance is counted as a parent asset in the Student Aid Index formula and assessed at no more than 5.64%. That’s far more favorable than assets held in the student’s own name, which is one reason we don’t recommend moving college money into a child’s name.
Similarly, qualified withdrawals are not counted as income. Withdrawals made for non-qualified expenses are subject to income tax and a 10% penalty on the earnings and 529 plans can also have more fees than a traditional savings account so it’s important to do some research and find low-cost options that fit your criteria. There are exceptions worth knowing: if your student earns a scholarship, you can withdraw up to that amount without the penalty, and leftover funds can now be rolled into a Roth IRA for the beneficiary within limits. We covered those changes in Enhancements to 529 College Savings Plans.
While 529 plans are considered an investment, the options are much more limited than a standard investment account. For this reason, some families opt to save for college in a standard taxable investment account. These accounts don’t offer tax benefits, but the funds can be used however you’d like without penalty.
The Takeaway
When it comes to paying for college, there’s a lot to think about. There are many variables to consider, but the most important thing is recognizing the need for planning and taking action ahead of time. Being proactive is much less stressful than being reactive, especially when it comes to money and savings. By laying out your options, weighing the pros and cons, and taking your own financial situation into account, you can begin to build a flexible plan that meets your needs. And if you’re a high-income family assuming none of this applies to you, start with “We Make Too Much to Get Anything”: The College Assumption That Costs High Earners the Most.
About Andrew
Andrew Comstock, CFA®, is a Principal and Wealth Advisor at Beyond Wealth, a fiduciary financial advisory firm based in Overland Park, Kansas. Leveraging a strong background in institutional investment management, he specializes in creating research-driven portfolio strategies for wealth-building professionals and business owners. A University of Tulsa alumnus, avid global traveler, and proud cancer survivor, Andrew delivers tailored, impactful wealth management to the Kansas City area and beyond.
