THE AID FORMULAS TAKE into account a host of factors. Still, much hinges on four key drivers of aid eligibility: the parents’ income, the parents’ assets, the child’s income and the child’s assets.
Under the formulas, parents are expected to contribute as much as 47% of income and as much as 5% to 5.6% of assets toward each year’s college costs, though only higher-earning and wealthier parents will be assessed at such high rates.

THE SUM YOU’RE expected to pay toward college costs is reflected in a number known as the Student Aid Index, or SAI, which replaces the old “expected family contribution” beginning with the 2024-25 academic year. Many parents are shocked by how much they’re expected to cough up each year toward college costs. You can get a handle on your family’s expected contribution using the quiz at CollegeBoard.org.
Let’s say your family is expected to pony up $15,000 a year.

COLLEGE FINANCIAL aid is a source of great hope, frequent confusion and often bitter disappointment. To get a handle on the topic, start by considering three points:

While there are scholarships available for the academically and athletically gifted, much financial assistance consists of aid that is based on a family’s financial need. The Department of Education has shifted to a new methodology, known as the Student Aid Index, starting with 2024-25 academic year.
Financial aid can take the form of subsidized loans,

IT WAS POPULAR at one time to buy savings bonds to pay for a child’s college costs. These days, savings bonds typically aren’t touted as a college-savings option, partly because 529 plans seem like a better alternative. There’s more about savings bonds elsewhere in this guide and also at SavingsBonds.gov.
Still, for those who qualify, savings bonds can be a low-risk, tax-free way to save for college. You can cash in savings bonds and avoid income taxes on the accumulated interest if you use the money for tuition and fees at a qualified educational institution for yourself,

IF YOU’RE PAYING qualified education expenses, you can withdraw money from an IRA and avoid the usual 10% tax penalty levied on those under age 59½. Problem is, if you withdraw from a retirement account—and that includes taking tax-free withdrawals from a Roth IRA—you’ll increase the income you have to report on your next financial aid application and potentially reduce aid eligibility.
One solution: You might borrow during the early college years and then withdraw from your IRA to repay the loans after your child has submitted his or her final financial aid application.

THERE’S NO LAW that says college savings have to be in a special education account. Yes, these offer tax advantages. Using a special account also appeals to our mental accounting: We like the idea that the money is segregated, and the separate account makes it less likely we’ll spend the savings on something else.
Still, for many parents, keeping college savings in their own name often makes sense. You might stash the dollars in a regular taxable investment account,

THE KIDDIE TAX IS designed to prevent parents from transferring large sums to their children with the goal of saving on taxes. In 2024, the first $1,300 of a child’s investment gains are tax-free and the next $1,300 are taxed at the child’s rate. For 2025, these figures rise to $1,350. Any investment gains above $2,600 in 2024 and $2,700 in 2025 are taxed at the parents’ rate.
The kiddie tax typically applies to children under age 18 or,

IF YOU OPEN a regular investment account for your child, you need to set it up as a custodial account under your state’s Uniform Transfers to Minors Act or Uniform Gifts to Minors Act. With an UTMA or UGMA account, you typically name yourself as custodian. That means you call the shots on how the account is invested. The money you put in the account is an irrevocable gift to your kid. To fund the account,

LIKE 529 COLLEGE savings plans, a Coverdell education savings account can give you tax-free growth if the money is used for qualified education expenses. A Coverdell is also typically treated as a parental asset for financial aid purposes—another attractive feature—and, like a 529, it can be used to pay for education expenses from kindergarten through college.
But there the similarities end. While 529 college savings plans restrict you to the plan’s menu of investment options,

PREPAID TUITION PLANS are a type of 529 plan. But unlike a 529 college savings plan, where you aim to earn healthy investment gains by picking from among a menu of mutual funds, a prepaid tuition plan is designed to let you lock in future tuition costs at today’s price. In effect, your rate of return should equal the percentage by which tuition costs increase between now and when your kid heads off to college.

IF YOU HAVE grandchildren, funding 529 plans is an intriguing option with three big benefits and one significant problem. First, as mentioned in the previous section, you can gift as much as $90,000 in 2024 and $95,000 in 2025, and count it as your gift for the next five years. That can get a big chunk of money, as well as its future investment growth, out of your estate. If, however, you die before the five years are up,

WHILE 529 COLLEGE savings plans have drawbacks, they have emerged as perhaps the best choice for parents looking to sock away money for college. A new, added benefit: Thanks to the 2017 tax law, up to $10,000 can be withdrawn from these accounts each year to pay for education costs for kindergarten through 12th grade.
The plans, named 529 after the relevant section of the federal tax code, allow you to save huge sums every year.

YOU SHOULD PROBABLY be more conservative with your children’s college savings than with your own retirement nest egg. Sound counterintuitive? Remember, your kids likely have no more than 18 years until they head off to college, while you may have decades until you quit the workforce—and you’ll likely live a few decades beyond that.
The implication: While you might initially invest your children’s college savings heavily in stocks, you should probably start moving toward bonds even before they enter high school.

TAKE THE SEVEN-FIGURE sum now needed to send a child to college for four years—and we’re talking here about in-state universities, not just private colleges. For most parents, saving up that sum simply isn’t doable, especially because they also need to save for their own retirement. In fact, retirement should take precedence: Your kids can take out loans to pay for college and there’s a chance they may receive financial aid. By contrast, for retirement,

WE ALL WANT THE BEST for our children. But what can you reasonably afford? If you’re struggling to save enough for retirement, it may be unrealistic to think you can also help with college costs.
If that’s the case, you should tell your children early on and preferably no later than the freshman year of high school. You don’t want your kids to spend years imagining they will go to a college that you simply cannot afford and that,