Last Minute Advice
Here are some last minute tips on finding money for college. It is
best to start thinking about how to pay for college as soon as
possible. However, there are a few things families can do even if
they don't start planning until after their child is admitted.
This advice is also useful for families whose finances are falling
short of college costs.
- Start searching for scholarships.
There are scholarships with deadlines in every month of the year. The
bulk of scholarships have deadlines in the fall and spring, but there
are still many awards with deadlines in the summer. Even if you do not
qualify for any of these awards, it is best to start searching for
scholarships now, to get a head start on next year. Don't put off the
search any longer.
- If you have not yet submitted the
Free Application for Federal Student Aid (FAFSA),
you need to submit it immediately.
- Many families feel that they cannot afford college costs
despite the financial aid package, in part because the need analysis
formula does not consider credit card balances and other forms of
FinAid offers several tips on
maximizing eligibility for need-based aid,
such as paying off your credit cards to reduce visible assets.
In some cases a family might not be able to find the money for college
because of special circumstances, such as high medical bills or an
impending job loss. Special circumstances are anything that
distinguishes the family's finances from most other families or
anything that makes the prior tax year income an inaccurate predictor
of family income during the academic year. In such situations the
family needs to send a letter to the school summarizing the special
circumstances and asking for a
professional judgment review.
Even so, most families will be faced with hard choices and sacrifices.
- There are several
education tax benefits
that can provide some financial relief after the fact. These include
the Hope Scholarship and Lifetime Learning tax credits, and the
Tuition and Fees Deduction.
- It is never too late to start
saving for college, even if the child is
But keep the money in liquid investments, so that you can access it
quickly if you need the money to pay college bills. Also use this as a
reminder to start saving for the student's siblings.
The tax benefits of section 529 college savings plans can save you
money even on a short-term investment horizon. Not only do 529 plans
shelter short-term earnings from federal and state income taxes, so
long as the distributions are used to pay for qualified higher
education expenses, but in many states you can
deduct the contributions on
your state income tax return. (Many states do not have a waiting
period on distributions, so you may be able to deduct your
contributions even if they remain in the plan for just a day.)
- Ask your employer whether they offer any employer tuition
assistance programs. Some employers provide student aid for their
employees and/or their employees' dependents.
- Look for student employment opportunities. Even if the student
doesn't qualify for Federal Work Study, there are plenty of jobs
available for students on and off campus. The student should consider
working 10 to 20 hours a week during the semester (15 hours is ideal)
and full time during the summer.
- Consider enrolling in a less expensive school, such as a
community college or state school. You can always transfer to the more
expensive private college later.
You should also consider other ways of
cutting college costs, such as
attending a local college and living at home.
- If you're trying to compare several colleges, consider your out
of pocket costs. Private colleges may charge more tuition than public
colleges, but they also offer more financial aid. So rather than
looking at the sticker price or the discount, focus on the bottom line.
There are two ways of evaluating the bottom line cost. One is to
subtract just the gift aid (money that doesn't need to be repaid) from
the cost of attendance. This reflects the total amount of money the family
will need to pay out of current earnings and through loans. The other
is to subtract the total amount of the financial aid package from the
cost of attendance. (Be sure to subtract any unsubsidized Stafford
Loans and PLUS Loans from the package first, to ensure an apples to
apples comparison.) Although many families do not consider education
loans to be a form of financial aid, they do provide cash flow
assistance. So the difference between the cost of education and the
financial aid package represents the amount of money the family will
need to spend from their own resources to pay for college.
When comparing out of pocket costs, verify that the school's cost of
attendance figures are realistic, since different schools include
different expenses in the student budget. In particular, look at the
allowances for transportation and personal expenses, since these can
vary significantly from school to school.
- If you can't afford to pay the college bills all at once, ask
the school about
tuition installment plans. These
spread out the school's charges over a 9, 10 or 12 month period. Usually
they are interest-free, but charge a small annual fee (typically $50
- Consider obtaining an education loan,
such as an unsubsidized Stafford Loan or a PLUS Loan. These
low-interest loans do not depend on financial need. The interest on
education loans is also now tax deductible.
If the parents cannot afford to take on any more debt, apply for a
PLUS loan anyway. If a student's parents are turned down for a PLUS
loan due to bad credit or bankruptcy, the student becomes eligible for
increased Stafford Loan limits. Some banks are also allowing parents
to defer payments on a PLUS loan until the student graduates.
Home equity loans and lines of credit are also an option, as are
peer-to-peer education loans.
- FinAid does not recommend taking an early distribution from a
retirement plan. Between the taxes, penalties, and the negative impact
on financial aid, such a move offers only short-term relief while
hurting the parents' retirement savings. Even borrowing from a
retirement fund is not a good option.
military aid, such as ROTC.
investments are an alternative to loans in which an investor gives
the student money for college in exchange for a small percentage of
their income for ten years after they graduate.
- Ask relatives for help. Even if the parents are not on good
terms with the student's grandparents, many grandparents are willing
and able to help pay college bills. The money should be given to the
parents and not directly to the student in order to avoid affecting
need-based financial aid eligibility.
They can also contribute to the
student's section 529 college savings plan, which includes an
accelerated five-year gifting option. This allows each grandparent to
give up to $65,000 per grandchild without incurring any gift tax. It
is a great estate planning tool.