Three ways to send your kids to college without taking on debt

College can be a financial liability for parents and kids. Here are three ways to send your kids to college without drowning in debt.

Melanie Stetson Freeman/The Christian Science Monitor/File
Hope Marie Harley works in the counseling office at Frederick Community College on a work-study program to avoid student debt, on October 6, 2015 in Frederick, Maryland.

My young son Reece just completed a math lesson at school in which he learned how to count by thousands. The lesson ended when the class got to the millions. When I told him that numbers go up to the trillions, he was shocked: “Wow, that’s a lot of zeros.”

One of those numbers is the $1.2 trillion in outstanding student loan debt, according to recent data from the Federal Reserve Bank of New York.

And that enormous figure is likely to get much bigger. The Congressional Budget Office estimates that it will double by 2025. What’s more, almost 12% of current loans in the second quarter of 2015 were delinquent or in default for at least 90 days, according to the New York Fed. And because half of all loans are in special programs, such as deferment programs that allow students to delay paying off their debt, the percentage of students behind on their payments is likely even higher.

Clearly, families need to develop strategies to pay for college that go beyond relying on student loans. These loans can be an important part of a sound college planning strategy, especially because some loans offer competitive interest rates and others are subsidized. But the interest payments on the principal can substantially increase the long-term cost of an education.

Here are some alternative college-funding strategies that every family should explore:

1. Fund a college-savings vehicle.

Funding a college-savings vehicle should be the foundation of your college planning strategy. The sooner you establish a plan, the better. Every dollar saved and earning interest is less money borrowed and accruing interest.

Roth IRAs offer tremendous flexibility and are a great place to save if you qualify. You receive excellent tax benefits and the ability to withdraw your contributions at any time for any reason. Though you will still need to pay taxes, your earnings can also be withdrawn penalty-free for qualified education expenses.

529 savings account, although somewhat less flexible, is specifically designed to save for education expenses. It offers similar tax benefits to a Roth but is easier to qualify for and has higher contribution limits. A Private College 529 Plan could be the best savings vehicle of them all for people set on having their child attend a private institution.

Try to incorporate one of these savings vehicles into your college planning strategy as early as possible.

2. Don’t limit your college selections.

Doing your research when looking at schools for your children could prove to be the most valuable part of your college plan. Most families will just automatically exclude higher-priced private colleges, or they’ll fail to explore colleges offering merit aid or skip the schools where they believe their child’s academic profile might not be the best fit. If that’s you, think twice about those strategies.

Beginning in high school, families should research colleges to determine potential financial aid packages. You shouldn’t assume their child won’t fit in academically but look at how he or she compares with other incoming freshmen. Students who fall into the top tier of admissions are more likely to get financial aid and have their needs met with grants and scholarships rather than loans.

Doing some due diligence upfront and being flexible in your college search should pay tremendous dividends.

3. Consider a co-op program for your child.

What if I told you there was a way for students to pay for college that doesn’t have a negative impact on their financial aid eligibility while gaining valuable work experience? Well, there is! It’s called cooperative education, also known as a co-op program. These programs allow students to alternate between semesters of full-time work and full-time study.

If there is one action I regret in college, it was not pursuing a co-op program. A friend of mine who participated in a co-op ended up paying for almost half his education through work, graduated debt free and landed a job with an established accounting firm upon graduation.

The vast majority of students are graduating with a lack of real-world experience, limited job prospects and substantial amounts of debt.  A co-op program can help address all of those concerns. When your child is applying to colleges, he or she should ask if the schools have co-op programs and what the requirements are to participate.

Key questions

With the cost of college rising at nearly twice the pace of inflation, you need to understand your options and how they fit into your overall college-funding strategy. Ask yourself important questions such as:

  • Are there ways to optimize my child’s financial aid?
  • Are there tax strategies that could help me defray the costs?
  • How will my college funding choices affect my own retirement?

We all want the best for our families, but there is no need to mortgage your future — or your child’s — to obtain it. Be proactive and start developing your best college-funding strategy today.

This article first appeared at NerdWallet.

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