Your stocks are down and college tuition is rising. How do you pay for your child's education in an economic downturn? Answering this question depends on how far away your child is from going to college. If your child is three years old, you have time for the stock market to turn around. But if your child is within two years of attending college, you'll have to take a different course of action. Start by evaluating your family's situation – beginning with your current savings and investments for your child's education.
TUTORIALS: Student Loan Guide
What You Have: Savings and Investments
If your child is 10 years away from college, use economic downturns as warning signs for what can happen to stocks and bonds in a sour economy. Either look over your investment accounts yourself or with your investment advisor to verify that your account is balanced based on risk levels you're comfortable with for the long-term. If your child is within two years of attending college, move your investments into extremely safe investment vehicles such as savings accounts and money market accounts.
But what if, with only two years until your child attends college, your stocks have dropped in value below what is needed for your child to attend the school of his or her choice? It's still best to get your money out of risky investments. Even if you're not happy with the current value of your 529 plan or other investments, taking the risk that your investments will become further devalued is not advisable. Base your choices on what money you know is available, not just for your child's freshman year but for all the way through to your child's college graduation. The only way to do this is with relatively safe investments. (For more information on choosing the right risk level, see Personalizing Risk Tolerance.)
What You Can Get: Federal and Private Loans
Federal and private loans can bridge the gap between the money you have available and the full costs of your child's college education. Start by determining your federal financial aid options the year before your child attends college. The Free Application for Federal Student Aid (FAFSA) is used to evaluate your child's financial need based on your income level and assets. Colleges you select on your FAFSA will receive your income and asset information, and let you know what college or federal grants your child may qualify for, as well as the amount of federal loans your child is eligible to receive. You don't have to accept these loans, but knowing your options will help you evaluate the feasibility of your child attending each particular school.
If federal loans aren't enough, private lenders can also provide needed funds (Learn more about paying back multiple loans in Should You Consolidate Your Student Loans?) Compare rates among multiple lenders. Because private loans generally have variable interest rates, ask the lender to discuss what your payments could escalate to if interest rates were to rise. You must be prepared to make the payment even if the rate changes. Also, ask both the high school guidance counselor and the college admission counselor for estimated salary ranges your child can expect after graduation to help you determine how much of that salary can contribute to paying off the loans.
Re-Evaluating Public Versus Private Colleges
Your child wants to attend a private college with a tuition rate of over $32,000 a year, but you can't afford this amount out of your pay and the money you've saved would only allow an annual contribution of $10,000 a year. If student loans are taken out, your child - or you - will be saddled with loans that could easily exceed $100,000 after a four-year degree.
Your family has a decision to make that will affect all of your financial lives for years to come. Ask yourself these questions:
- Is this private school worth it? Will the potential income in my child's prospective career make up for the difference in cost?
- Can my child attend a public college and still attain the same goals?
- Could my child attend a public school for the first year or two to offset the costs of private school?
- Have we checked into scholarships, grants and other available financial aid?
Use all available resources to make this decision. Again, speak with your child's high school guidance counselor and the academic advisors from the colleges your child is considering. Although each college advisor will likely tell you their school is worth the money, the specifics of why they think their school is worth it can help you comparison-shop.
Testing Out Basic Courses
Between advanced placement (AP) classes, the College Level Examination Program (CLEP) and the Dantes Subject Standardized Test (DSST), your child can earn up to two years of college credits before stepping foot on a college campus. The tests award college credit for the knowledge your child already has and the testing fees are insignificant compared to the cost of one to two years of schooling. AP tests are administered at high schools, and CLEP and DSST tests are conducted at local university and community college testing centers. Be sure to check out study guides from the library or purchase them from the bookstore and help your child set up a study plan. If your child is unprepared, paying testing fees won't be worthwhile.
Setting Aside Family Time for Scholarship Research
Set aside an hour a week for the whole family to search for scholarships together. It's a fantastic way for the whole family to be involved in the college funding process and it will help reduce the eventual cost. There are tens of thousands of scholarships available that can be found in books and on websites. By involving the whole family, you can take some of the pressure off your aspiring college student to find funding. Sort through the information available to find scholarships based on your child's interests and talents. As a bonus, younger siblings can learn about scholarship research before it's their time to enter the college funding process.
When the economy lags, your child's college wishes don't have to fall with stock prices. Use all available resources to find free and borrowed money to supplement the money remaining in your 529 Plan. In the process, you'll bond as a family. Your family's united efforts may even end up saving you enough money to put towards your retirement or perhaps even a celebratory dinner for your new, soon-to-be graduate.
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