LOS ANGELES (Reuters) - Soaring college costs and stagnant incomes mean many families will not be able to save enough to pay for a typical undergraduate education. But there are still ways to find a college degree you can afford.
The good news is that most people will pay significantly less than the sticker prices published by colleges, which currently average just under $20,000 a year for public four-year university courses, over $40,000 per annum at private colleges, and $60,000 at many elite schools.
The average net price - what families actually pay for tuition, fees, room and board after deducting grants and scholarships - was $12,830 for public colleges and $23,550 at private institutions for the 2014-15 academic year, according to the College Board.
That’s still a sizeable chunk of change, and doesn’t include books, supplies or transportation costs.
Families with higher-than-average incomes, or whose children attend colleges that offer measly student loan assistance, tend to pay a lot more.
If you haven’t been saving since your child’s birth, or you have, but not nearly enough, here’s what to do now:
Using estimated family-contribution calculators from the College Board or individual colleges can give you a better idea of which schools may meet much of your financial needs, which ones may give merit scholarships - even if you’re not needy, and which aren’t generous in the least.
College consultants recommend applying for at least one financial “safety school” - one whose costs you know you can handle - in addition to “target” schools that you can pay for with a stretch of your resources, and “reach” schools that may be out of your range but could surprise you with generous financial aid.
Having your child attend a nearby school so he or she can live at home at least for the first year or two, can dramatically cut the cost of college. The average net price for room and board was $9,800 at public schools and $11,190 at private colleges.
Attending community college for a while can save money as well, but the dropout risk rises. Your student should make sure his or her community college credits will transfer to the desired four-year school.
A gap year also may be a good option, especially if the student has no idea what to study, or has a job that can help offset college costs.
Paying as much of the bill as possible out of your current income will help you minimize the debt that you or the student need to take on. That means employing the usual budgeting hacks: eating out less and curtailing vacations.
If the student attends a school more than 100 miles away and won’t be driving there, you may qualify for a break on your auto insurance premiums.
Selling non-retirement investments and other assets does more than just help you pay for school. Removing them from your balance sheet could qualify you for more financial aid in the future.
Check with a tax professional first, though, since selling typically has tax consequences. You also can withdraw the amount you contributed to a Roth IRA without taxes or penalties, but make sure you won’t need the money for retirement.
Anyone who borrows for education should keep in mind that lenders will approve far more debt than you can comfortably repay.
A good rule of thumb is to limit student loans to the annual salary the borrower expects to earn during the first year out of school. A more conservative standard is to limit all borrowing to federal student loans, which have fixed rates and numerous repayment options. (Private loans typically have variable rates and far fewer consumer protections.)
Most undergraduates can borrow a maximum of $5,500 in federal loans their first year and $31,000 in total for an undergraduate degree. Independent students and those whose parents can’t get approved for PLUS loans can borrow up to $57,500.
Parents should limit their borrowing to what they expect to pay off within 10 years. If borrowing would interfere with your ability to save for retirement, though, you probably shouldn’t take on the debt at all.
Current PLUS (federal student loan) rates of 7.21 percent are high, compared to what banks charge for home equity lines of credit (around 4 percent for people with good credit).
Unfortunately, HELOC (home equity line of credit) rates are variable and likely to go up. If you can pay the debt off within a few years, though, Hellos may well be the cheaper option.
Editing by Beth Pinkser and Bernadette Baum