WASHINGTON Aug 3 It's the time of year when
new college students start buying notebooks, but after paying
the year's tuition bills, notebooks could suddenly become
Parents are scrambling, as average private-school tuition
tops $21,000, and many schools top $40,000, according to
Department of Education figures. Those figures do not even
include room and board, pizzas, iPads, colorful bedding or
spring break trips.
What's a parent to do, especially at this late date?
Schools have long handed out almost all of their financial aid
for the year and money is tight.
First, don't give up: All those people speculating that
college is not worth the price probably wouldn't bet their own
children's future on that.
By 2018, as many as 63 percent of all U.S. jobs will
require a post-secondary degree, according to new research from
Georgetown University (tuition: $40,920 a year), which found
the earnings gap between those with degrees and those without,
remains a vast chasm. College-educated workers can expect to
earn $1 million more over their careers than folks who stopped
after high school.
Second, don't go crazy. Parents should avoid sacrificing
their own retirement savings to the college gods.
So, figure out a way to pay, but don't go bankrupt trying.
Here are some last-minute guerrilla techniques for lining up
the cash for class.
-- Start small. High-school seniors may not want to spend
their first year commuting to the local community college, but
when you show them the money, they may reconsider. That's what
Brian Fricke and his wife Annette did when their two sons
approached the college decision. "We sat them down and said,
'between the two of you, you're going to save us $60,000 by
starting at community college. Down the road, we'll be in a
better position to help you out with a downpayment on a house
or funding a business or whatever.'"
Both sons opted for the local start; the older one has
already transferred to a four-year school and the younger one
is starting his sophomore year. "My goal for my sons is that
they both graduate college with zero debt," says Fricke. Oh,
both sons now also own their cars outright. Even if you don't
think a year or two of community college works for your child,
they can fulfill their prerequisites there and possibly shave a
costly semester off of their college career.
-- Deconstruct the aid offer. Look at the package your
child was offered. Some of it may be in the form of subsidized
loans, some of it unsubsidized loans, some of it pricier
private loans and some of it grants and work study. Take the
grants and think carefully about whether the loans are your
best deal; you are allowed to pick and choose what you want out
of the package. If your family's financial situation has
changed for the worse, with illness or job loss, you can go
back to the financial aid office and ask for more money.
-- Pay as you go for extras. The aid package is usually
designed to cover all of the costs of a year of attendance,
including transportation, a computer, food and the like. Don't
borrow for all of those add-ons, says Howard Freedman, a
private financial-aid adviser in Stoughton, Massachusetts. You
can probably pay for them out of current income or short-term
borrowing on a credit card perhaps.
-- Jump start the whole deal with the 529 plan. If your
child has a 529 college savings plan, use up that money first.
That buys you some time to come up with other cash and helps
avoid the possibility that you will end up with money left over
in the 529 plan.
-- Go on a payment plan. Most colleges offer some kind of
plan where you can pay monthly instead of the whole bill at
once. That enables you to stretch out the payments (and the
borrowing, if you're using a home-equity line or some such).
Even when there is a charge to do it, the payment plan can
smooth your finances for the college years.
-- Be creative. Even a blowout garage sale can raise some
money for college. So can encouraging your child to ask for a
one-year deferral on their acceptance and then work and save
for a year. Or have her go to school part time and work full
time. Ask your employer whether your company offers any sort of
family education benefit. Maximize the child's earnings:
Students who know a lot about computer programs, for example,
can earn a lot more as consultants than they can working for
minimum wage at the corner sub shop.
-- Borrow elsewhere. Private college loans (and even some
unsubsidized federal loans) aren't such a great deal and you
may have a cheaper and better source of money. Brian Martin, an
Edina, Minnesota, wealth manager, tells his clients to consider
borrowing from cash value life insurance policies, home equity
lines or even a 401(k).
Rates can be far lower than they are for private college
loans. When you borrow from your own 401(k), you are really
paying that interest back to yourself. The interest on a home
equity line of credit can be tax deductible and you can limit
your borrowing to the amount you actually need, when you need
-- Hit up the extended family. Is grandma suffering with
bank CDs that are paying 1 percent or less in interest while
you shell out 7.9 percent for "Plus" (parent loan for
undergraduate student) loans? Ahem, you might be able to work
out a private loan deal. Just make sure you can really keep up
the payments and not leave Granny in the lurch. If grandparents
actually want to help pay for college, they can send their
checks directly to the school and not have it count against the
annual gift tax exclusion.
-- Cut extra expenses to the bone. If your child is going
to be on a college campus for a couple of years, you can sell
his car, or at least take it off the road and save on
insurance, says Freedman. Don't buy big meal plans for kids who
are little eaters. Don't spend money buying college-sponsored
health coverage if they are already covered by your insurance
plan. You may even consider (dare I say it?) canceling the
spring break trip and encouraging your scholar to earn some
money over vacation instead.
(The Personal Finance column appears weekly. Linda Stern can
be reached at linda.stern(at)thomsonreuters.com)
(Editing by Maureen Bavdek)