Your Retirement Center

The Cost of a College Education

Paying for college can be an extraordinary expense, but there are ways to do it.

There's no question that the cost of college can be intimidating, especially if you have more than one child. In fact, the average tuition and fees for in-state students at public institutions was $11,000 for the 2020-2021 school year, and at private not-for-profit ones it was closer to $40,000. But paying for college may be more manageable than you assume if you plan ahead. You can also investigate a number of ways to control the cost.


While tuition may be the largest single expense of attending college, it isn't the only one. Whether students live on campus or commute from home, they must pay for books, food, transportation, and other expenses - many of which aren't covered by scholarships or loans. While these costs apply no matter where your child attends, you'll find that they vary, just as tuition does, from school to school. You may want to ask your child to weigh those differences in making his or her final decision, along with choices between a rural or urban campus and a large school or a small one.

The image shows the Average Annual cost
*Source: The College Board, Trends in College Pricing, 2020. (Percentages for various costs are approximate.)
TUITION The charge for instruction, including salaries, facilities, and the general operations of the institution. Public, tax-supported schools usually cost less than private ones.
ROOM Housing in the dorms. Other housing options, such as apartments, fraternities, and sororities, may not be billed through the college, but the costs are comparable.
BOARD Dining hall meals. Most schools offer several different plans, at different costs. Students who don't live in college housing may pay for food individually.
ACTIVITY FEES Extra money for clubs, the yearbook, school newspaper, and graduation. Everyone pays a standard fee, though it varies from college to college.


In 2021, you may qualify for an American Opportunity Tax Credit (AOTC), an enhancement of the Hope tax credit, for money you spend on a child's educational expenses if he or she is enrolled at least half time in a qualified higher education institution and pursuing a degree or other credential. Qualified institutions include liberal arts colleges, universities, and vocational, trade, or technical schools. You may take the credit for your own expenses or those of your spouse, with the same conditions.

In addition, you may qualify to claim a lifetime learning credit of up to $2,000 each year for other qualified higher educational expenses, including your own. The course work doesn't have to be part of a degree-granting program, though it can also be used for postgraduate or professional studies. You can take both credits in the same year, but not for the same person.

You can take only one lifetime learning credit per year, even if you are paying for more than one person's education. But if two students are enrolled in post-secondary school at the same time, you can qualify for two AOTC tax credits. You're eligible for the full amount of these credits - up to $2,500 AOTC and up to $2,000 lifetime learning credit - if your modified adjusted gross income falls within the limits set each year and available in IRS Publication 970. These income ceilings may increase gradually to reflect inflation. As an alternative, you may be able to take an above-the-line deduction for qualified higher education expenses you pay for a qualifying student during the year. You're eligible for a maximum deduction of $4,000 if your adjusted gross income (AGI) isn't more than $80,000 if you file as a single taxpayer, or $160,000 if you file a joint return. Above those income levels, you don't qualify for the deduction. To claim the deduction, use IRS Form 8917.

You can get more information on all the tax benefits you may qualify for on the IRS website ( or in IRS Publications 553 and 970.

TAX-WISE INVESTING FOR A COLLEGE EDUCATION You might want to investigate some of the specific investment options designed to help you save for college expenses. You can get helpful, up-to-date information on the websites of the US Department of Education ( or The College Board ( Education savings accounts. You or another relative or friend can contribute up to a total of $2,000 per child per year to a Coverdell education savings account (ESA) set up in the child's name, provided your adjusted gross income for the year is less than the cap the government sets. The earnings in the account are completely tax free if the money is used to pay qualified education expenses, such as tuition and room and board, anytime before the beneficiary reaches age 30. You can also use money in an ESA to pay qualified expenses for children in grades K-12. You can check the current cap at US savings bonds.Interest earnings on certain US savings bonds are completely tax free if you use the money to pay your child's qualified higher education expenses. However, there is a ceiling on the amount of income your family can be earning at the time you cash in the bonds to qualify for the tax break. There are also other restrictions on purchase and ownership. You can get information at (
SAVING IN A CHILD'S NAME Any adult can save for college by opening a custodial account in a child's name under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA). However, taxable earnings are taxed at the parents' rate until the child turns 19, or 24 if he or she is a full-time student.

One advantage of an UGMA or UTMA is that you as the donor or the person you name to oversee the account can choose how to invest the assets in the account, and you can move assets you own into the account without having to sell them, which might result in a potential capital gains tax. But the strategy can backfire if the child applies for financial aid. That's because UGMAs and UTMAs are assets of the child and most financial aid formulas require students to contribute approximately 20% of their savings toward college costs, while parents are required to supply about 6% of theirs. The other drawback is that once the child reaches the age of majority (18, 19, 21, or 25 depending on the state and the type of account), he or she has the right to assume control of the account and spend the money.


If you don't have as much as you need to pay for higher education, schools may offer your child a package of aid:

  • Scholarships or grants, which do not have to be repaid.
  • Loans, which must be repaid, but usually not until after graduation. Working in certain jobs or locations can reduce the loan or postpone repayment.
  • Work/study grants, which pay the student for work done on campus during the school year. Sometimes earnings are deducted from tuition and other times the student earns a salary.
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