Planning and paying for higher education

The rising cost of higher education is out pacing inflation and families need to plan accordingly.

The rising cost of higher education is out pacing inflation by an average of about 4%. Between 2012 and 2017, tuition has risen by approximately 9% in most cases. Many families are struggling financially to find what may be the best way to pay for college.

Applying for financial aid is usually the first step that individuals will make to help with the cost. There are four basic types of aid that can be received: work-study, grants, loans (federal and private) and scholarships. This is done by filling out the Free Application for Federal Student Aid (FAFSA form). The form is filled out between October and February before the student’s fall classes and determines what financial aid one is eligible for. Eligibility for financial aid is need based. Student resources, parent’s resources (if student is considered a dependent) and academic status (full time, part time) are used in the calculation.

Once the FAFSA form is completed, it will create the Expected Family Contribution (EFC). The EFC is not the amount of money the family will have to pay for college nor is it the amount of federal student aid one will receive. It is a number used by the school to calculate the amount of federal student aid the student is eligible to receive. The school will send a financial aid award letter in the spring. This will then assist in calculating what will be needed to cover cost of attending school for a year.

If there is time before the student attends college, specific college saving tools are available to assist. Many states have 529 plans. The benefits of these plans are: withdraws are not taxable, earnings are tax deferred, contributions are considered gifts, and funds can be transferred between siblings. Coverdell Educational Savings Account is another savings vehicle for college. It works similar to a Roth IRA but strictly for education. Michigan has a number of resources available to assist in paying for continued education. To learn more about these resources go to: mistudentaid website.

Families may consider a few creative solutions. Relatives may helping through estate planning strategies such as gifting or paying tuition directly to the university (no gift taxes). Parents and students are sharing on the contribution to school by using funds freed up by the student no longer living in the household and/or cutting back on expenses. Also encourage the student to hold a job during school breaks that to help assist with cost while in school. 

Michigan State University Extension offers free webinars on student loans. To find dates and times of the next webinars go to:

Additional information is available at the National eXtension site There you will find fact sheets to determine repayment options and general information about student loans This article was published by Michigan State University Extension. For more information, visit To have a digest of information delivered straight to your email inbox, visit To contact an expert in your area, visit, or call 888-MSUE4MI (888-678-3464).

Did you find this article useful?