Bridging the College Funding Gap: Strategies Beyond the 529 Plan
A comprehensive guide to grants, scholarships, strategic borrowing, and cost-cutting tactics for families
Written by Tom Mullen
High school seniors are receiving Early Decision and Early Action notifications from their dream colleges. If your 529 college savings plan doesn't fully cover costs, you're not alone and it's far from a roadblock to quality education.
While paying cash for tuition, room, and board would be ideal, it's not realistic for many families, and may not be the most tax-efficient strategy. The good news? Multiple funding options exist. Here are practical strategies to finance college costs, leveraging grants, scholarships, strategic savings, and smart borrowing.
Maximize "Free" Money: Grants and Scholarships
The priority should always be hunting for sources of money that do not have to be repaid.
- Everyone should complete the FAFSA: The Free Application for Federal Student Aid (FAFSA®) is the gateway to federal and state financial aid, including the MASSGrant and MASSGrant Plus programs that can be found in Massachusetts. Even if you think your income is too high, you should still fill it out; it's free and many institutional aid awards also rely on this information. You can complete the form on the StudentAid.gov website. The most common objection that I get about the FAFSA is privacy. The reality is that if you file taxes in the US, the government already knows! Massachusetts also offers free assistance on FAFSA Day.
- Apply for Scholarships: Scholarships are available from numerous sources and can be based on merit, talent, need, or specific interests. Massachusetts also has specific state programs like the John and Abigail Adams Scholarship.
- Check with your high school counselor or the college's financial aid office for local opportunities.
- Search online using tools like the U.S. Department of Labor's free scholarship search tool, Scholarships360.org or Fastweb.com.
- Apply for small scholarships, as several small awards can quickly add up. Some of the smaller scholarships do not get as many applicants and can often be more attainable.
Leverage Other Savings and Assets
If your MEFA U.Fund falls short, other savings and assets can be strategically used.
- Taxable Brokerage Accounts: A standard brokerage account offers investment flexibility with no restrictions on how the money is used. While earnings are subject to capital gains taxes, this can be a viable source of funds when planned for strategically. If you own marginable securities, this could also play a role in financing.
- Roth IRA: Contributions (not earnings) to a Roth IRA can be withdrawn at any time, tax-free and penalty-free, for any reason, including qualified education expenses. This option offers flexibility since the money can still be used for retirement if not needed for college.
- Traditional or Rollover IRAs: Unlike Roth IRAs mentioned above which contain after-tax assets, the funds in these accounts are generally fully taxable at ordinary income rates. Generally, withdrawals from these accounts before age 59.5 are subject to a 10% early withdrawal penalty, but the IRS exempts payment for education from the 10% penalty. While an option, these are typically a last resort given the tax impact and the effect on the account holders retirement planning.
Explore Smart Borrowing Options
If a funding gap remains after exhausting grants, scholarships, and other savings, student loans can help. It is best to consider the long-term impact of taking student loans. Loans can sometimes act as a bridge to get to 59.5 when a parent can access a Roth IRA’s growth fully tax free or some other source of funding like an inheritance. If loans are to be part of a family’s longer-term picture, the ability to accomplish other financial goals need to be considered,
whether that is retirement for parents or buying a home for the student.
- Federal Student Loans: These should be your first choice for borrowing.
- Direct Subsidized and Unsubsidized Loans (Stafford Loans) have fixed interest rates and offer important borrower protections like income-driven repayment options and potential loan forgiveness for public servants.
- Direct PLUS Loans are another federal option, though they do require a credit check.
- Private Student Loans: These loans from private financial institutions can fill any remaining gaps and can have variable or fixed interest rates and fewer consumer protections compared to federal loans. They almost always require a cosigner and a credit check. Consider competitive, fixed interest rate MEFA loans designed to help Massachusetts families pay for college. Be sure to compare offers from different lenders before committing.
- ParentPlus Loans: Rather than leave the graduating student with the loan balance as they enter their working years, more and more parents have opted to accept some of the ongoing liabilities. Tied to the borrower’s credit score, these loans are not obtained through traditional underwriting procedures so they are often easier to obtain but can lead people to end up borrowing more than their finances can support, especially if they expect their income to drop in the future. Rates may be a little higher and loans can carry an upfront fee; these loans are able to be discharged based on the death or disability of the borrower.
- Home Equity: Accessing home equity through a Home Equity Line of Credit (HELOC) or a cash-out refinance is another option, though it comes with the risk of putting your home up as collateral. Rates also play a significant role in whether this option makes financial sense. Considering mortgage interest may be deductible, these borrowings can be more tax efficient than a student loan where income tests could mean the borrowers interest is ineligible for deductions for tax purposes.

Adjust Your Strategy and Reduce Costs
Sometimes, the best approach is to re-evaluate the cost of attendance itself.
- Consider a Cheaper School: Starting at a community college for general education courses and then transferring to a four-year institution can save a significant amount on tuition. Massachusetts offers a MassTransfer program with tuition waivers and credit transfer guarantees to make this path smoother. State schools outside of your home state may also provide more aid for out-of-state students and could help to reduce the total costs. Sometimes a better climate or sports program can be appealing.
- Community College: Many community colleges offer free or low-cost tuition and are taught by wonderful faculty. With a fast-changing labor landscape, considering many young people are not sure of their career pursuits, this early exposure to fields of interest may make good sense all the while earning credits that may be transferable to their final destination.
- Earn Credits in High School: Taking Advanced Placement (AP) or dual enrollment classes can reduce the number of college courses needed, potentially cutting down on time and cost.
- Part-Time Work and Tuition Assistance: A part-time job or a Federal Work-Study position can help cover expenses like books and living costs. Check if your or your child's employer offers tuition reimbursement programs.
- Tuition Payment Plans: Many colleges offer plans that allow you to spread tuition payments over the course of a semester or year, making budgeting easier and potentially avoiding large lump-sum payments or late fees. Contact the school's billing office for information.
By combining these options, you can create a comprehensive plan to fund your education. Working with a financial planner, especially one who focuses on education funding, can help you bring all of this to life. For more detailed information on what options might work best for
your family, contact Breakwater Capital Group or download our free eBook for more detailed information.
The views expressed represent the opinions of Breakwater Capital Group as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.
Breakwater Team
At Breakwater Capital, we work with families across the United States, providing each client with a personalized experience tailored to their current circumstances, future goals, and timelines.
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