There are basically three strategies for coming up with cash to cover the Expected Family Contribution, or the amount that your family will be expected to pay for college: 1) use college savings, 2) pull the money from another savings vehicle, or 3) work to pay for school.
Use College Savings
If you have managed to save money for your child in any of the popular college savings plans—529 savings plans, Coverdell Education Savings Accounts, 529 prepaid tuition plans, or Uniform Gifts to Minors Act accounts—then you should begin by using those to pay for your child’s EFC. If your child has a 529 plan, check to see where it stands.
Pull Money from Another Savings Vehicle
The second way to find money to cover the EFC is to pull it from other savings accounts. In recent years, more and more parents have been pulling money from their IRAs to pay for college costs. In 2018, for example, 9% of parents took money from a retirement fund to pay college expenses, up from 3% in 2009.
If you do raid your IRA for college expenses, then you don’t have to pay the 10% early withdrawal penalty that normally applies when pulling money out of an IRA before age 59½.
A 401(k) is a bit trickier to pull money from, because you will have to demonstrate a financial hardship. You might be able to borrow the money from the 401(k) and repay it with interest. Keep in mind, however, that many well-known financial advisors—most notably Suze Orman and Dave Ramsey —argue that parents should not use retirement funds to pay for college expenses.
Work to Pay for School
The third strategy for finding cash to meet the EFC is to encourage your child to work while going to school. What I’m talking about here is a regular job. I’ll discuss work-study opportunities—which are part of the federal financial aid program—later. At the very least, you should expect your child to work during the summer to contribute financially to their college costs.
In addition, they should consider looking for a part-time job during the school year. Most college advisors recommend that students work no more than ten to fifteen hours per week during the school year.
There are two main benefits to working while in school. First, earning money during the school year can reduce a family’s reliance on student loans (Parent and Student). Second, your child will gain work experience while getting their degree. This can help them to stand out in a tough job market. Bear in mind, however, that student earnings will impact EFC. Generally speaking, about half of a student’s earnings are credited towards their EFC.
Some people worry that their child’s grades will fall while employed and attending college. Interestingly, however, a recent study shows that students who work part-time tend to get better grades in college. When students are working and going school, they are forced to organize their time really well.