How to Fill a College Savings Gap

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Kathryn Flynn

By Kathryn Flynn

March 19, 2019

Even after years of saving in a 529 plan, many parents come up short when it’s time to pay for college. It may be tempting to dip into retirement savings or take out an excessive amount of student loans to fill the gap, but doing so may put your (or your child’s) future financial security at risk.

Families saving for college should monitor their progress with a college savings calculator. A good rule of thumb is to aim to save about one third of projected future college costs. The remaining two-thirds can be covered with current income and student loans, as long as the total amount borrowed is less than the salary the student expects to earn during their first year out of college. 

To find out if your college savings are on track, multiply the child’s current age by $3,000 for an in-state public 4-year college, $5,000 for an out-of-state public 4-year college and $7,000 for a private non-profit 4-year college.  

The easiest way to make up for a college savings shortfall is for parents to increase 529 plan contributions, but that’s not always possible. Fortunately, there are other ways to bridge a college savings gap.

Ask grandparents and other loved ones for help

Almost all 529 plans accept third-party contributions, and many 529 plan gifting platforms allow gift-givers to make secure electronic deposits. Some 529 plans also offer crowdfunding tools that make it easy to ask grandparents and other friends and family to give the gift of college.

It’s never too early to start asking for help with college savings. 529 plan contributions made for baby showers, birthdays, holidays and graduation benefit from tax-free compounding and have the potential to grow significantly over time.

Join Upromise

Upromise is a loyalty program that offers members cash back for college for shopping online, dining out and using the Upromise Mastercard. Members can link an eligible 529 plan to their Upromise account to qualify for additional bonus rewards.

Apply for financial aid

Every student, regardless of household income, should complete the Free Application for Federal Student Aid (FAFSA). Income and assets reported on the FAFSA are used to determine a student’s eligibility for federal need-based financial aid, including federal student loans, and may be used to determine eligibility for institutional merit aid. Some colleges and universities also require students to complete the CSS Profile to apply for merit aid. 

The FAFSA can be completed any time between October 1 and June 30, but students should submit the FAFSA as early possible since some institutional aid is awarded on a first-come, first-served basis. States and colleges may also have their own FAFSA deadlines before June 30.

Find scholarships

There are many types of scholarships available for college. Students can start their search by using a free online scholarship matching service, which will provide a list of scholarships they are eligible for. But, the search shouldn’t be limited to online scholarships. Local businesses and community foundations often award college scholarships, and many employers offer scholarships for children and grandchildren of employees.

Students generally start applying for scholarships between August and December of their senior year of high school. However, there are also many scholarships for younger children that can help give your college savings a boost.

Take advantage of the American Opportunity Tax Credit

The American Opportunity Tax Credit (AOTC) allows eligible parents to claim an annual tax credit of up to $2,500 per student for college expenses. The AOTC is equal to 100% of the first $2,000 spent on qualified higher education expenses plus 25% of the next $2,000. However, there is no double-dipping. Different expenses must be used to justify the AOTC and a tax-free distribution from a 529 plan. 

Consider a lower-cost college

The amount parents need to save for college depends on the type of college or university their child will attend. For example, the College Board reports that the average cost of tuition, fees, room and board at a private, non-profit, 4-year college during the 2018-19 academic year was $48,510, compared to only $21,370 for a public, 4-year, in-state college, and $12,320 for a public, 2-year, in-district college.

However, these average costs reflect a college’s sticker price, which is typically higher than what a student ends up paying. The net price is the actual price a student pays after grants, scholarships, tuition waivers and other gift aid for the school year are factored in.

Students may be able to save a significant amount of money by starting out at a community college, but not without putting their future degree at risk. A better strategy may be to explore 4-year colleges that offer grants and scholarships to help bring down costs.

At, our goal is to help you make smart decisions about saving and paying for education. Some of the products featured in this article are from our partners, but this doesn’t influence our evaluations. Our opinions are our own.

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