How Do Parents Pay For College If They Cant Afford It
Your child gets into college maybe even their top choice and you are thrilled. There’s just one problem: you don’t have enough saved up. You want to help pay for their education but can’t afford to. What options do you have?
Of course you can encourage your child to apply for scholarships and grants to help offset the cost of school. But what can you do if you still can’t afford college?
Can Retirement Accounts Be Used To Save For College
Yes. Should they be? That depends on your familys circumstances. We generally discourage paying for college with funds from a retirement account even more so if using retirement funds for a childs college education will leave you with no funds in your retirement years.
With that said, you can certainly tap your retirement accounts to help pay the college bills if you need to. With IRAs, you can withdraw money penalty free for college expenses, even if youre under age 59½ .
However, with an employer-sponsored retirement plan like a 401 or 403, youll generally pay a 10% penalty on any withdrawals made before you reach age 59½ , even if the money is used for college expenses. There may be income tax consequences, as well.
College is a big hurdle, and if history is any indication of what is to come, costs could continue to rise. As with any goal, consistently saving is usually the best strategy.
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Education Clause Of Divorce Settlements
An education clause is often included in a divorce settlement. These clauses require the non-custodial parent to contribute a certain amount of money to the childrens cost of college. Some colleges will treat this contribution as a resource of the student. Thus, this non-custodial contribution reduces the childs financial aid eligibility on a dollar-for-dollar basis.
Furthermore, many divorce settlements include a provision to create and fund a trust for the benefit of the children. Since assets are being shifted from the parents to the children, the parental asset assessment rate of 5.6% will change to the childrens asset assessment rate of 20% and will cause a loss in financial eligibility.
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How Much Student Loan Debt Is Too Much
Student loans are a big part of what is fueling the college education bubble. The Federal government funds billions in student loans each year, primarily based on financial need, with no concern for ultimate academic achievement or future earnings potential.
Investing in the education of the population is valuable however, when its done without any concern for the end result, the impact can be devastating, most especially to the student saddled with thousands in debt they cannot afford to pay back.
About 45% of people who are no longer in college and have student loan debt said that college was not worth the cost, according to a survey from the Consumer Reports National Research Center. And students who dont finish college are four times more likely to default on their student loans, representing 63% of all defaults.
Average Annual Cost Of Attendance For 2019
2-year public institution
- Tuition and fees: $36,880
- Room and board: $12,990
Attending a community college for the first two years can save you thousands of dollars and put you at an advantage for the next stage in your education. Additionally, if you are an in-state resident and attend a public university, you can attend college at a lower cost.
State taxes play a significant part in school funding, and residents who attend school in-state receive lower tuition rates. On the other hand, private institutions can offer generous aid packages to undergraduates with financial need, which is why its integral to compare your options.
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Take Advantage Of Rotc
Each branch of the armed services offers ROTC scholarships, which stands for Reserve Officer Training Corps. The premise is simple: The military pays for some or all of your childs college tuition, and in exchange, your child commits to a certain number of years of service upon graduation.
When students graduate and begin their military service, they enter as officers, receive additional training, and specialize. In many ways, its a win-win the student gets a free or deeply discounted college education, a guaranteed job upon graduation, and additional career and leadership training. They also receive some structure and personal value instruction to boot which some young adults need more than others.
Beware, though, that ROTC scholarships are far from guaranteed students must apply for them and be accepted into the program. And like all scholarships, theyre contingent on performance. If your child slacks off and earns Ds, dont expect the military to keep paying their tuition.
As a parent, you can sweeten the pot for your kid by offering to invest some of the money you and they are saving on tuition. You could put it aside for a down payment on their first house or invest it in an IRA for them. For that matter, you can invest it in your own retirement so your kids arent stuck supporting you when youre old and broke!
Create A Family Budget
Before rolling your eyes at this ubiquitous tip from financial experts, keep reading just a bit further. Here’s why a detailed monthly or weekly budget can ultimately help you be more successful at saving for college and help you avoid dipping into those retirement funds.
“Once you have a good understanding of your cash flowall of the money coming in, and all of the money that’s going outfor necessary and not-so-necessary expenses, perhaps you find that you have a bit of gap or a few hundred dollars extra that you could be putting toward your child’s education,” Andrew Pentis, a certified student loan counselor and education finance expert at Student Loan Hero, tells Parents.“Or some families may find they don’t have that gap, and they need to look at ways to cut their expenses, or increase their income in order to have free cash available to dedicate, and redirect toward saving for a child’s education.”
For more than a few parents, the task of saving for college will seem overwhelming or simply too daunting, but Pentis says it’s important to bear in mind that even small amounts that you can set aside month after month will ultimately add up and make a difference.
“If you have $25, or $50, every little bit helps, and is a victory,” says Pentis. “It’s doesn’t have to be thousands of dollars, especially if your child is years away from college still. The total balance of your savings will allow your money to accrue more and more interest over time.”
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Minimum Duration Of A Qualifying Educational Program
Full-time program in Canada: A course of study that lasts at least three weeks in a row, with at least 10 hours of instruction or work per week.
Full-time program outside Canada: A program at a foreign educational institution with a duration of at least 13 weeks.
Part-time program in Canada: An educational program at post-secondary school level that lasts at least three consecutive weeks, and that requires a student to spend not less than 12 hours per month on courses in the program.
Programs that qualify include apprenticeships as well as programs offered by:
- other institutions certified by the Minister of Employment and Social Development.
Research Scholarships And Grants
A money-saving strategy that does not require postponing college is to apply to schools where you have unique characteristics they seek. For example, you might have an ethnic background that a school is looking for, a compelling academic expertise, or play a sport or a musical instrument that makes you stand out. Schools that see you as a valuable addition due to an unusual skillor have bequests that support students with your characteristicsmay provide a scholarship. Also look for national-level grants, such as the Pell Grant, to see if you qualify to apply.
Another tactic is to work in a field where you may be paid to go to college. Some companies provide tuition reimbursement or support for advanced training. So does the militaryand some of those benefits are also available to spouses and dependents of service members.
A third technique is to look into an income share agreement. These plans lend you money now, in return for a share of your future income for a specified period of time. These plans differ according to your major and your college. Some plans have been accused of racism in their offers.
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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.
I Dont Feel Obligated To Pay For My Childs College Education
Something that often comes up in discussions about the cost to raise children is the notion that we should all be saving for our kids college educations. It has become so commonplace that many parents have incorporated it into their monthly budgets, right alongside the mortgage payment and the diaper bill. After all, thats what all responsible, loving parents who only want the best for their children do, right?
Wrong at least in my book.
I believe that as parents, we should not feel obligated to pay for our childrens college education. I can almost hear your gasp as youre reading this. Dont I love my children? Dont I want the best for them? Dont I care about their futures? You bet I do. And I will provide everything that they need to be successful, from the physical needs of clothing, food, and shelter to the emotional needs of support, love, and guidance. And for that reason, I will not allow them to feel entitled to have me pay for their college education, nor will I force them to attend college if they would prefer not to.
Consider these points:
In conclusion, there are simply many alternatives to the Im-paying-for-college-come-hell-or-high-water approach, which very well may serve only to enable and perhaps leave everyone disappointed.
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Q: Are Parents Who Are Divorced Or Living Separately Legally Obligated To Pay For Their Child’s College Education And Related Expenses
A: As a general matter, most educational expense issues are addressed during the divorce process itself, along with other child support issues. However, when there is no agreement in place, the obligation of divorced parents to pay for their child’s college expenses will depend on the state.
Some states require divorced parents to pay for college-related expenses , while other states view these as conditional expenses and do not require college expense payments and/or reimbursement.
Learn more about the child support guidelines in your state.
Question : Are Your Finances Solid
Experts warn against putting your own future at risk for the sake of your childrens. Before you put even one dollar into college savings, they say, you should make sure youre meeting your own financial needs. That means having at least three months worth of income in an emergency fund and meeting the required payments on your mortgage and other debts.
You also need to make sure youre saving enough for retirement. Experts say to err on the side of caution with this, since you could be forced to retire early or spend more than you expect in retirement. Only when youre confident all these needs are covered should you start setting aside money for college costs.
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Other Ways To Reduce College Tuition
Were still a long ways out from college, so we have many unknown variables to work with. Hopefully, our children will make things easy on us by receiving some form of scholarship, financial aid, grants, or have some of their own savings to contribute. There are also work-study programs and other ways to reduce the cost of tuition. Or, like me, they may decide to join the military and receive tuition assistance benefits to help pay for college while they are serving .
Another way to reduce college expenses is to attend a less-expensive community college for two years to earn the basic college requirements, then transfer to a traditional four-year university. Doing this makes it easier to pay for community college using college savings, paying cash as you go, or if you live in Tennessee, not paying tuition at all. The bonus is most community college students will be able to continue living at home, saving a lot of money on room and board. Then you can save the GI Bill for the more expensive tuition and room and board at the university.
Some students are even choosing international colleges where they can receive tuition that is more or less free, leaving them on the hook for room and board, and travel. This can be much less expensive than a traditional four-year university in the United States.
Canada Education Savings Grant Lifetime Limit
Educational Assistance Payments consist of earnings as well as the Canada Education Savings Grants, provincial grants and Canada Learning Bonds received. The beneficiary cannot receive more than $7,200 in Canada Education Savings Grants in his or her lifetime.
When a student receives an Educational Assistance Payment, he or she will also receive a notice detailing the amount of Canada Education Savings Grants in the payment received. It is the students responsibility to keep track of the amount of Canada Education Savings Grant money received beneficiaries must repay any amount over the $7,200 limit.
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Private Parent Student Loans
Think carefully before taking out a federal loan. As a parent, you have the option to borrow a private parent student loan in order to help your child pay for college. This type of loan is available to borrowers with strong credit, and will require a credit check from your chosen lender . You may need to apply with a cosigner to qualify. In contrast to the federal loan option, private loans offer many competitive, and cost saving, features. If youre deemed to be eligible for a private parent student loan, your lender may offer zero to no loan fees and a competitive interest rate based on your credit. You can borrow up to your childs cost of attendance minus any other aid received.
Because this is not a federal student loan, this loan may not have the same type of repayment plans, opportunities for forgiveness, or other federal benefits provided with a federal student loan.
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.
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What If I Cant Pay For My Childs College
Not every parent can afford to send their child to college. And thousands of students go to college every year without parental assistance thanks to student loans. I was one of them. I had no college fund, and I paid for my entire 4 years at Notre Dame through scholarships, work-study programs and student loans.
The Federal government is one of the primary providers of student loans in the United States. When looking to obtain student loans, you should exhaust ALL federal options first, before taking on private loans. Federal loans offer flexible repayment options, loan forgiveness porgrams for some future careers, as well as subsidized loans, none of which are available via private sources.
Stafford loans offered by the government come in two types: subsidized and unsubsidized. Subsidized Stafford loans have no payments until after you graduate and the government pays interest while you are in school. You must have demonstrated financial hardship with family income less than $50,000 annually to obtain a subsidized Stafford loan. There are annual loan limits and total debt caps for undergraduate studies.
Unsubsidized Stafford loans also defer payments until after you graduate, but you are responsible for all accrued interest. These are available to all students, and also carry annual limits and total debt limits for undergraduate studies.