If you have a teen who’s starting to think about college or already enrolled, the new year is the perfect time to start planning for internship opportunities, school breaks … and future tuition bills. Paying for education expenses can have a big impact on your family’s immediate and future financial situation, so it’s important to spend carefully. Following these 4 steps, inspired by our latest research, can help you tackle that tuition bill.

How to tackle that tuition bill
1. Take inventory
First, estimate how much education expenses will cost for the year. Earmark expenses, such as tuition, technology, and fees, that meet the criteria for tax-free withdrawals from 529 accounts, and consider which expenses can be applied toward a tax credit (more on that later).
Take stock of your financial resources, and factor in the amount relatives are contributing too. The annual cost of college minus the assets and income you can put toward it will help you estimate the amount your child will need to contribute or borrow.
— Jonathan Kahler, CFP®
2. Keep financial aid top of mind
Even if you don’t expect to qualify for any need-based aid, have your child submit the Free Application for Federal Student Aid (FAFSA) each year to maintain eligibility for federally subsidized student loans.
It’s also important to think ahead about how the timing of your spending can potentially impact financial aid in subsequent years. Typically, students use tax return information from the prior 2 years when filling out the FAFSA. Given this delay—and the fact that income reduces aid eligibility more than assets—your child can maintain (or improve) their financial aid status by spending from their assets in the early years of college and their income in the later years of college.
Sources: Vanguard calculations, based on information from the U.S. Department of Education and the College Board.
Still saving? Make it a family affair.
Consider telling your relatives about Ugift®. It’s a free service that makes it easy for others to contribute to your child’s 529 account using a unique code. As an account owner, you can access your child’s code when you log in to your account.
3. Consider tax credits
The reality is, most families can’t cover 100% of their child’s college costs using 529 assets, but there’s an upside: tax credits.
Because 529 withdrawals for qualified education expenses are tax-free, you won’t qualify for any tax credits if you use 529 assets to pay for education expenses. But if you use another resource to cover education expenses, such as a taxable account or current income, you may qualify for a federal tax incentive for higher education. The American Opportunity Tax Credit, the Lifetime Learning Credit, or the tuition and fees deduction can help offset your tax burden.
4. Take all your financial resources into account
A 529 is specifically designed to help families save for education. But when it comes to planning how you’ll pay for those expenses over the long term, consider all your financial resources.
Spreading your 529 spending over the years your child’s in college will give the money in your account additional time to compound and grow tax-free. And if your home state offers a tax benefit for 529 contributions, continuing to save in your 529 account—even while your child is in school—can earn you a valuable tax credit or deduction. If you have unused 529 assets after your child graduates, don’t worry. They won’t go to waste since you can transfer your 529 account to another beneficiary.
You can use money from various investment accounts, including taxable checking and savings accounts and student-owned accounts (UGMAs/UTMAs), to help pay for education expenses. But before tapping into these resources, consider the tax implications and impact on financial aid. For a more complete list of financial resources, including their potential impact on financial aid and tax implications, see Figure 3 in our research paper.
If possible, avoid using your retirement savings to pay for education. If you have no other choice, request a loan from your 401(k), which is less likely to impact financial aid eligibility, before taking a distribution from an IRA.
— Jonathan Kahler, CFP®
Financial advice isn’t just about retirement
Our advisors can help you reach your education savings goals and create a college spending plan.
You’re in the homestretch
Whether you’re a veteran college saver or new to the game, you’ve been preparing to send your child to college for a long time. It can feel overwhelming when you start to withdraw the savings you’ve accumulated or spend a portion of your income on your child’s education—but it just may be the best money you’re ever going to spend.
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Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.
For more information about any 529 savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor for some 529 plans.
For more information about The Vanguard 529 College Savings Plan, obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. Vanguard Marketing Corporation, Distributor.
If you are not a Nevada taxpayer, consider before investing whether your or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Other state benefits may include financial aid, scholarship funds, and protection from creditors.
The Vanguard 529 College Savings Plan is a Nevada Trust administered by the office of the Nevada State Treasurer.
The Vanguard Group, Inc., serves as the Investment Manager for The Vanguard 529 College Savings Plan and through its affiliate, Vanguard Marketing Corporation, markets and distributes the Plan. Ascensus Broker Dealer Services, LLC, serves as Program Manager and has overall responsibility for the day-to-day operations. The Plan’s portfolios, although they invest in Vanguard mutual funds, are not mutual funds. Investment returns are not guaranteed, and you could lose money by investing in the Plan.