Back to school: Education funding at every life stage

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Here’s what to know about tools that could help you save for education costs for yourself, your child, or your grandchild.

Higher education comes with one of the biggest price tags most of us will face. With tuition and room and board at many private four-year colleges topping $50,000 a year,1 even affluent Americans have to plan well in advance for their children’s or grandchildren’s education funding, says Robert G. Petix Jr., lead wealth planning strategist for Wells Fargo Wealth & Investment Management.

“The whole issue of the affordability of higher education is a big concern, especially for those who may not qualify for financial aid because of their income level,” Petix says. That said, families have many strategies and tools at their disposal, from planning ahead and using tax-smart investing to seeking merit scholarships and making strategic choices about which school and program to enroll in.

Those options also apply for education funding beyond a child’s four-year undergraduate degree. And that’s increasingly important: With today’s shifting economy and workforce, many adults are going back to school, whether to finish a degree, enhance their skills, or work toward a new career. In 2019, roughly a third of college students were age 25 or older, according to the National Center for Education Statistics.

Even older generations are thinking more about plans for education funding, Petix says. Many grandparents want to contribute toward a grandchild’s college costs, and upcoming changes to federal financial aid guidelines will make it even more beneficial for grandparents to contribute.

Here, Petix focuses on an important component of covering the costs of education: Building and maximizing the savings for your education funding.

Planning education funding for your child

Petix says that 529 college savings plans are the most popular ways to save for a child’s college costs — and for good reason. “They basically offer the best of everything,” he says.

There are no restrictions on who can contribute to a 529 plan, and earnings and withdrawals are tax-free as long as they are spent on tuition, books, fees, supplies, or other education-related expenses.

Other benefits?

  • The plans are available in every state.
  • If one student doesn’t use the money, the plan can be shifted to another beneficiary in the family (including yourself) without penalty.
  • In addition to covering college costs, you can use 529 plan money to pay back up to $10,000 in student loans or to fund K-12 private school tuition.

The only downside is that you are somewhat limited in your investment choices, Petix says.

Coverdell education savings accounts allow more flexibility in how you invest, and they also offer tax-free growth potential and tax-free withdrawals. However, the maximum contribution is $2,000 a year, and the accounts are available only to families whose modified adjusted gross income is less than $220,000 (or $110,000 for single filers).

There may be some rare circumstances in which your financial advisor could recommend setting up an education trust, such as if you hope to fund education for your heirs for multiple generations. Overall, though, Petix says that because the tax advantages of a 529 plan so far outweigh those of any other type of college savings plan, it is almost always the best option.

Planning education funding for yourself

If you’re trying to go back to school, first check to see if your employer offers tuition assistance, Petix suggests. About 47% of employers offer the benefit, according to research firm Statista. In many cases, the payment requires a commitment to stay at the company for a certain length of time after you get your degree. Some companies are also offering student debt repayment options, which means you could borrow and then repay. The requirements for that repayment will likely depend on the company’s plan as well as the program of study you choose.

If tuition assistance is not available, Petix recommends opening a 529 plan for yourself, saving for a few years, and taking advantage of the tax-free earnings potential and withdrawals. (And don’t forget to explore potential scholarships while you save.)

There are borrowing options as well: Low-interest federal loans and grants may or may not be available to you, or you might be able to borrow against your home equity to pay for your education. (Home equity loans typically have lower interest rates compared with other types of debt.) However, Petix suggests caution when it comes to borrowing, especially given the current higher interest rates.

“I’m not an advocate of debt unless it can be justified for a business reason,” Petix says, “such as if you’re a teacher and getting a master’s degree will increase your salary, or your new degree is going to lead to a second career with a higher income.”

If you’re older than 25, some colleges have “promise” or “free college tuition” programs that offer free tuition to adults over a certain age. You could also investigate online courses as options to bolster your skills and gain knowledge at a lesser expense, Petix says.

Planning education funding for a grandchild

Petix says that contributing to a 529 plan is once again your best option. If you have the means, making a large contribution to a 529 plan early in a child’s life so that the investment has a longer period to possibly grow tax-free can be a powerful way to support your grandchild’s education. Some states also offer an income tax deduction for contributions to their state’s 529 plan.

If your grandchild plans to apply for need-based financial aid, the assets in a 529 plan set up by a grandparent do not need to be reported on the free application for federal student aid, called the FAFSA. Under current rules, any distributions are reported as untaxed student income, and those payments can reduce a student’s eligibility.

However, beginning in 2024, a simplified FAFSA form will eliminate the question about gifts from grandparents, making a 529 plan an even better tool for a grandparent to build an educational legacy for their grandchild. Given the pending change in the FAFSA rules, it probably makes better sense for grandparents to establish a separate 529 account rather than contribute to the parents’ 529 account.



  1.  Average published charges for full-time undergraduates, 2021 – 2022, tuition and fees for one year for a private nonprofit four-year college: $51,690; “Trends in College Pricing and Student Aid 2021,” Table CP-1,

Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.

Wells Fargo Wealth & Investment Management (WIM) is a division within Wells Fargo & Company. WIM provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.

Wells Fargo Advisors and its affiliates do not provide legal or tax advice. Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors.