Take Out Federal Loans
The first step for any prospective college student should be to fill out the Free Application for Federal Student Aid . This will determine how much aid your child will get in a variety of forms, including grants and federal loans.
But if your child is considered a dependent, you will be responsible for completing a portion of the FAFSA form you will need to provide your income, assets and other financial information. This will open up the possibility of a Parent PLUS Loan, although that doesnt mean you are obligated to take out a Parent PLUS Loan, just that its an option.
A credit check is completed for this type of loan, so you cant have an adverse credit history. You can borrow up to the total cost of tuition, minus any other financial aid, and will always have a fixed interest rate since the loan is issued by the government.
Unlike other federal loans, Parent PLUS Loans are provided in the parents name, and its your responsibility to pay it back as soon as its fully disbursed.
How to get a federal loan
Your child can go ahead and do the work of filling out the FAFSA, and you can input your information. Once that is done, you can sign in to StudentLoans.gov to request a PLUS loan and then follow the instructions, which will depend on the school. Then, if you are eligible, you will have to sign a Master Promissory Note agreeing to the loan terms.
Help Your Child Find Specialized Scholarships
Prospective students can often receive additional educational funding through specialized scholarships. As a parent, you can really help by doing research into the options that are available. For instance, there are community service scholarships for those who volunteer and give back to their communities.
Check with your employer, too, because some companies offer scholarships to children of their employees. Scholarships provided by local businesses or civic organizations may also be greatly available. You may find boosters or groups who have funded grants or scholarships specifically designed to help promising young residents to head off to college. Multiple organizations also provide monetary assistance for women and minority students.
Three Parents Share How They Paid For Their Childs College Education
If youre the parent of a student, you may be starting to think about the future of your childs education specifically, how you or your child might pay for college. Options may start dancing through your mind: Should you start a savings account? Should you draw from your retirement fund? Will your child have to pull a student loan?
Theres no doubt about it financially planning for your childs college education can be stressful, especially since college tuition has increased 213% since 1987 and the average student loan debt rose to $39,400 . All of those numbers amount to one word: Yikes!
You might even want to be able to pay for your childs college, but youre worried about paying off your own student loans. Not to mention, you may have a mortgage payment and you also might want to retire at some point in your life.
If your goal is to get your child through college debt-free, were here to say its possible with a game plan and a little strategic budgeting. To give you some inspiration, we found three parents who were able to pay for their childrens college education. Here are their stories and advice to others.
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Use Your Retirement Savings
The options above are often the wisest choices, but you do have a couple other choices using retirement savings or home equity. While not ideal, this approach might be worth considering in some cases.
If you have some wiggle room with your retirement accounts and arent worried about your future finances, you could tap into your retirement account to help pay for college. This option is only available to parents under the age of 59½ with an IRA account. You will not face early withdrawal penalties but might have to pay taxes on the amount depending on whether you have a traditional or Roth IRA.
This option isnt available with a 401, but you might be able to get a 401 loan. Check with your retirement accounts for your options and what it would cost you to do this.
How to use your retirement to pay for college
Choosing this option when paying for college will depend on what retirement account you have set up and its limitations for early withdrawal. Its helpful to reach out to the institution managing your retirement account to find out exactly how to request a withdrawal to pay for your childs college education.
Your human resources advisor might also be able to guide you on the process if your account was set up by your employer.
What’s A Parent To Do
Theres much a parent can do to support their childs college experience without digging into their wallet. Help them search for scholarships and fill out the FAFSA. Encourage your child to get a part-time job during high school and college. And, help them make smart financial choices during their college search.
Most importantly, start the conversation about college expenses early and have it often, says Jessica Velasco from JLV College Counseling.
Financial aid is;not created equal, and two colleges with identical costs could offer much different financial aid awards, explains Velasco. Therefore, as students and parents are going through the college search, financial fit is an important aspect to consider when adding colleges to the interest list. Research financial aid options at colleges by reviewing the financial aid pages as well as filling out the net price calculators to get a good idea about the amount of financial aid that;may be offered if the student is admitted to the college.
Finally, explore the option of taking out loans along with your student, as long as thats manageable for you. And, together, look for tips to fill tuition gaps. There just may be more resources available for students and parents than you realize.;
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Compare Financial Aid Packages
When your child is accepted into a college, theyll receive a financial aid package . Comparing financial aid packages from different schools is incredibly important. You can weigh how much aid each school is willing to give your student against other perks or drawbacks in order to narrow down the list.
No two schools have the exact same financial aid offerings or admissions policies, so their offer letters may look entirely different. On top of that, the type of school might affect the type of aid or the amount of aid offered by quite a bit. For example, private schools tend to offer their students more in the way of financial aid to offset the higher tuition costs, whereas public schools may not offer quite as much, but typically have lower sticker prices to begin with.If you feel your child has not been offered as much as they deserve or need, you can potentially appeal the offer letter for more aid.
Question : What Are Your Childs Career Plans
Even if youve already saved up money to send your kids to college, that doesnt necessarily mean it makes sense to spend it that way. College is only a good investment if your kids will use that degree to pursue a career where it really makes a difference.
A college degree is a bigger advantage in some fields than in others. Health care jobs, such as pharmacy and nursing, have lots of job openings for new graduates. Engineering and agriculture majors, and some education majors, are also likely to get good jobs, according to Kiplinger.
But other majors, such as literature and the arts, dont offer a clear route to a high-paying job. Your child could spend four years at college only to end up working in retail anyway. If your child is passionate about art, perhaps they could redirect that passion into a more lucrative field like art education. However, if they wont even consider a degree that could pay for itself, maybe college isnt a good investment.
Remember, too, that some careers dont require a degree. If your child is drawn toward hands-on work, such as auto repair, maybe a trade school or an apprenticeship would be a better value. A military career can start right after high school or with a free education at one of the service academies.
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Covering All The Bases
Not being able to help their children pay for the cost of college is often one of the most difficult things for a parent to have to admit, but theres no shame in acknowledging your limitations. If you dont have any college savings and cant cover tuition, consider these six options to help your child afford college. Your kids will appreciate any little bit that you can help.
While youre at it, encourage your child to trim their college expenses as much as possible so that they need fewer student loans to begin with, and to keep track of their student loans as they take out new ones. Theyll thank you later!
Take Advantage Of The Aotc
The American Opportunity Tax Credit allows you to knock up to $2,500 off your tax bill, per student, per year. It can be applied to you, your spouse, or your dependents. The first $2,000 of your college expenses earn you a dollar-for-dollar tax credit, after which you get a credit of $0.25 for every dollar you spend on tuition, up to another $500 in tax credits.
Keep in mind that a tax credit is far more beneficial than a tax deduction. Deductions come off your taxable income; credits come off your actual tax bill. You can find more details about the American Opportunity Tax Credit and other college tax deductions and credits here.
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Fill Out A Fafsa Form
Once your child enters his or her senior year in high school, filling out theFree Application for Federal Student Aid is the best place to start work on financial aid. FAFSA uses financial information such as tax returns, bank statements, investments, property and other assets to do a need analysis that tells students and family what their;Expected Family Contribution; is going to be for college.
Nearly every college and university in the U.S.;uses the FAFSA in arriving at financial aid decisions. The difference between the actual costs and the EFC, is the amount of financial need. Schools are not forced to offer;financial;aid, but they may offer grants, loans or a work-study program to cover the financial need.
But first, you must fill out the FAFSA.
Viewpoint : Parents Should Not Be Responsible To Pay For College
Most parents want their children to be safe, successful, and financially sound. But does that require them to foot the full bill for their childs college education especially when paying for college often includes taking out loans? That debt burden can be a financial nightmare for parents who are trying to manage their own expenses while saving for retirement.;
In these cases, some experts believe parents should say no to paying for college. These experts say that taking responsibility for funding their own education helps young adults learn how to be smart consumers. For example, when faced with the reality of the price of college, students can learn how to think creatively in order to afford their education. Deciding to pursue part of their program at a less-expensive community college, working part-time while taking classes at night, or choosing a more practical major can help. Plus, while a student can borrow money for school, his or her parent cannot borrow money for retirement.
Still, while one can argue there are benefits to students funding their own education, it often seems colleges expect parents to foot the bill for a college degree.
Should parents be required by the government to pay for their childs education? Tippett says no.
First off, not every family could afford to pay, she explains. And, most importantly, not everyone needs to go to college or straight to college out of high school.
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Ways To Pay For College: Private Student Loans
Private loans stem from a few different sources, such as community organizations, nonprofits, corporations, banks, and even universities themselves. The interest accrued on private loans can be deducted from taxes, which can make them attractive to some families depending on their unique financial situation.
Private loans should be considered a last resort for funding a college degree, as the interest rates tend to be higher and the repayment plans are less flexible. If after youve exhausted every other resource, its paramount to help your child find a loan option that best fits your situation. With College Raptors free Student Loan Finder, you can look at interest rates and terms from leading lenders side by side.
Student loan borrowers will not only pay back the loan but also the interest that accrues every month based on the outstanding balance. For most borrowers, this interest rate is somewhere between 210%. Generally speaking, federal interest rates tend to be lower than private loan rates.
The rate of interest can make a huge difference in how much your child will pay not only each month, but total over the lifetime of the loan.Small changeslike 1 or 2%in an interest rate can add up to thousands or tens of thousands of dollars, depending on how much was borrowed and the repayment terms.
Factors that affect interest rate may include:
- Savings habits
Variable Rate vs. Fixed Rate
How To Help Your Child Afford College
Attending college seems to grow more expensive each year. Where once an adult could afford it rather easily, now it can require thousands upon thousands of dollars and put you into debt for years to come. If you would like your child to attend college, and want to make it a little easier for them to afford, there are a few things you can do to help.
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Live Off Campus Or Enroll In Community College
If commuting to school and living at home is an option, it can save a lot of money. The average cost for room and board is $10,440 at public colleges and $11,890 a year a private institutions. That can be just as much as the cost of tuition at some schools.
If your finances are really stretched thin, it might be worth exploring enrolling in a community college before transferring to a four-year school later. Tuition and fees at the average community college cost $3,520 last year.
Consider Tapping Your Home Equity
With home values high and mortgage rates low, its a great time to use your home equity, says Kevin McKinley, a financial planner and principal/owner of McKinley Money LLC in Eau Claire, Wisconsin.
There are three ways to unlock your equity:
A home equity line of credit, or HELOC.
A home equity loan, often referred to as a second mortgage.
A cash-out mortgage refinance.
Depending on how you tap your equity, there are pros and cons to consider. For instance, youll have to pay closing costs if you refinance your mortgage.
Tapping your home equity is risky because youre putting one of your most valuable assets on the line. If you cant make the payments or your homes value declines, you could lose it.
You dont want to take out equity to the point where if the housing market drops, all of the sudden youre underwater, Mayotte says.
Despite the risks, tapping your equity may be a better deal than a student loan when it comes to just straight dollars and cents, McKinley says. But he also acknowledges an emotional component involved with using home equity.
Some people are uncomfortable with the notion of mortgaging their home, he says. If thats the case, they should just get student loans.
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Encourage Your Child To Participate In The Process
If you go it alone trying to figure out how to pay for college for your child, you might not last long. Applying for gift aid, for example, can feel like an all-encompassing effort. Instead, make it all-hands-on-deck.
Encouraging your child to apply for scholarships on their own time is one way to get your student involved. Itll cut you some slack, and empower them to take on the tall task of paying for college without loans.
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