August 24, 2017
With orientation underway at many schools, families with college-bound kids are suddenly feeling the enormous weight of those now-due tuition bills.
But it’s not too late to come up with a few last-minute strategies to ease the burden of the sky-high cost of college.
“The first thing we tell people is don’t get caught up on sticker shock, there are very few families out there that can simply write a check,” said Richard Polimeni, director of the education savings programs at Bank of America Merrill Lynch and chair of the College Savings Foundation.
To that end, here are five tips from the pros on how to put together a successful college funding strategy — even at the 11th hour.
Fill out a FAFSA
If they haven’t already, encourage your child to fill out the Free Application for Federal Student Aid application immediately. Even late FAFSA applications can provide access to grants, scholarships or financial aid opportunities to help fund next semester, according to Liz Miller, president of Summit Place Financial Advisors. (Students who don’t file the FAFSA forgo an average $9,741.05 in aid, according to a study published this year in Research in Higher Education.)
Check with the school’s financial aid office, the College Board, Fastweb.org or the Department of Labor’s “Scholarship Finder” to find scholarships with deadlines that have not yet passed.
“That is money that is up for grabs,” Polimeni said. “You can cobble together a bunch of these, and that can be significant.”
Take out a loan
While borrowing money seems like the go-to option to help pay for college, parents should weigh this option carefully, Miller said.
If it comes down to your child taking out a loan, or you co-signing for it, make sure you know the different types of loans and interest rates available so you can lessen the burden of student debt after graduation. (Federal aid, including Pell Grants and federal student loans, may have lower rates and better borrower protections than private loans.)
Parents with good credit and income may want to consider a federal parent PLUS loan or a private parent loan of their own, said Joe DePaulo, CEO and co-founder of College Ave Student Loans. Just don’t sacrifice retirement savings to pay for college, he said. Unlike college, there are no scholarships or unsecured loans designed to cover those golden years.
“A good rule of thumb is to make sure you’re not paying more for your child’s education per month than you are saving for retirement,” he said.
Maximize your payments
Parents can choose to spread out tuition payments over 10 or 12 months with no interest by opting into a payment plan, which can make it easier to budget despite an enrollment fee.
Also, a direct tuition payment from your savings account to a qualified educational institution will incur no gift tax, which could be a good estate planning move down the road, saving you money in the long run, Miller said.
It’s not too late for a 529 plan
Even if you haven’t been saving in a 529, which offers tax-advantaged investments to pay for qualified education expenses, it’s worth revisiting your state’s plan. Thirty-three states and the District of Columbia offer a direct state tax deduction for your contributions. So, if you fund a 529 college savings plan today, you could get a tax deduction on your state income taxes this year, Miller said.
“That alone can help defray your overall college costs even if you withdraw the funds next year to pay the school,” she said.
Consider a part-time job
Six in 10 teens are working or expect to work part-time while at college, according to a recent report from TD Ameritrade, and that can have a number of benefits.
Not only can a side gig help pay for college costs, but students working up to 15 hours a week are more focused in class as well, resulting in higher GPAs than students who don’t work at all, according to a report by the Department of Education’s National Center for Education Statistics.
Including your college-bound student in decisions about how to pay for school will underscore what’s at stake, said Eric Greenberg, president of Greenberg Educational Group.
“I’ve been hearing parents saying, ‘Listen, we are making a huge investment here, there needs to be a reciprocal commitment,'” he said. “There’s no one that’s not aware of how expensive it is.”