Last Minute Advice on College Financing
There are several ways to start saving for college no matter how near in the future it may be.
Here are some last minute tips on finding money for college. It is best to start thinking about how to pay for college as soon as possible. However, there are a few things families can do even if they don't start planning until after their child is admitted. This advice is also useful for families whose finances are falling short of college costs.
- Start searching for scholarships. There are scholarships with deadlines in every month of the year. The bulk of scholarships have deadlines in the fall and spring, but there are still many awards with deadlines in the summer. Even if you do not qualify for any of these awards, it is best to start searching for scholarships now, to get a head start on next year. Don't put off the search any longer.
- If you have not yet submitted the Free Application for Federal Student Aid (FAFSA), you need to submit it immediately.
- Many families feel that they cannot afford college costs despite the financial aid package, in part because the need analysis formula does not consider credit card balances and other forms of consumer debt. FinAid offers several tips on maximizing eligibility for need-based aid, such as paying off your credit cards to reduce visible assets.
- In some cases a family might not be able to find the money for college because of special circumstances, such as high medical bills or an impending job loss. Special circumstances are anything that distinguishes the family's finances from most other families or anything that makes the prior tax year income an inaccurate predictor of family income during the academic year. In such situations the family needs to send a letter to the school summarizing the special circumstances and asking for a professional judgment review. Even so, most families will be faced with hard choices and sacrifices.
- There are several education tax benefits that can provide some financial relief after the fact. These include the Hope Scholarship and Lifetime Learning tax credits, and the Tuition and Fees Deduction.
- It is never too late to start saving for college, even if the child is already matriculated. But keep the money in liquid investments, so that you can access it quickly if you need the money to pay college bills. Also use this as a reminder to start saving for the student's siblings.
- The tax benefits of section 529 college savings plans can save you money even on a short-term investment horizon. Not only do 529 plans shelter short-term earnings from federal and state income taxes, so long as the distributions are used to pay for qualified higher education expenses, but in many states you can deduct the contributions on your state income tax return. (Many states do not have a waiting period on distributions, so you may be able to deduct your contributions even if they remain in the plan for just a day.)
- Ask your employer whether they offer any employer tuition assistance programs. Some employers provide student aid for their employees and/or their employees' dependents.
- Look for student employment opportunities. Even if the student doesn't qualify for Federal Work Study, there are plenty of jobs available for students on and off campus. The student should consider working 10 to 20 hours a week during the semester (15 hours is ideal) and full time during the summer.
- Consider enrolling in a less expensive school, such as a community college or state school. You can always transfer to the more expensive private college later.
- You should also consider other ways of cutting college costs, such as attending a local college and living at home.
- If you're trying to compare several colleges, consider your out of pocket costs. Private colleges may charge more tuition than public colleges, but they also offer more financial aid. So rather than looking at the sticker price or the discount, focus on the bottom line.
- There are two ways of evaluating the bottom line cost. One is to subtract just the gift aid (money that doesn't need to be repaid) from the cost of attendance. This reflects the total amount of money the family will need to pay out of current earnings and through loans. The other is to subtract the total amount of the financial aid package from the cost of attendance. (Be sure to subtract any unsubsidized Stafford Loans and PLUS Loans from the package first, to ensure an apples to apples comparison.) Although many families do not consider education loans to be a form of financial aid, they do provide cash flow assistance. So the difference between the cost of education and the financial aid package represents the amount of money the family will need to spend from their own resources to pay for college.
- When comparing out of pocket costs, verify that the school's cost of attendance figures are realistic, since different schools include different expenses in the student budget. In particular, look at the allowances for transportation and personal expenses, since these can vary significantly from school to school.
- If you can't afford to pay the college bills all at once, ask the school about tuition installment plans. These spread out the school's charges over a 9, 10 or 12 month period. Usually they are interest-free, but charge a small annual fee (typically $50 to $100).
- Consider obtaining an education loan, such as an unsubsidized Stafford Loan or a PLUS Loan. These low-interest loans do not depend on financial need. The interest on education loans is also now tax deductible.
- If the parents cannot afford to take on any more debt, apply for a PLUS loan anyway. If a student's parents are turned down for a PLUS loan due to bad credit or bankruptcy, the student becomes eligible for increased Stafford Loan limits. Some banks are also allowing parents to defer payments on a PLUS loan until the student graduates.
- Home equity loans and lines of credit are also an option, as are peer-to-peer education loans.
- FinAid does not recommend taking an early distribution from a retirement plan. Between the taxes, penalties, and the negative impact on financial aid, such a move offers only short-term relief while hurting the parents' retirement savings. Even borrowing from a retirement fund is not a good option.
- Consider military aid, such as ROTC.
- Education investments are an alternative to loans in which an investor gives the student money for college in exchange for a small percentage of their income for ten years after they graduate.
- Ask relatives for help. Even if the parents are not on good terms with the student's grandparents, many grandparents are willing and able to help pay college bills. The money should be given to the parents and not directly to the student in order to avoid affecting need-based financial aid eligibility.
- They can also contribute to the student's section 529 college savings plan, which includes an accelerated five-year gifting option. This allows each grandparent to give up to $65,000 per grandchild without incurring any gift tax. It is a great estate planning tool.
The article was originally published by FinAid.org. Copyright © 2014 FinAid Page, LLC.