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Financial advisers agree that the best way to save for college is to start early, but circumstances don't always allow you to follow that sage advice. And if your baby is college-bound just a few years from now, a traditional savings strategy won't cut it.
For the 2004-2005 academic year, the average cost of tuition and fees at a private four-year college totals $20,082, up 6 percent from last year; for a public college, it's $5,132, up 10.5 percent. And that doesn't include room and board. But even if you're getting a late start, these five smart moves can help you find money for those daunting college bills.Smart Move No. 1: Try a Tuition-Payment Plan
Many colleges, partnering with financial institutions, offer tuition-payment plans (also called tuition-management programs). These are short-term installment plans that let you pay a year's tuition in equal monthly sums (instead of shelling out for a whole year or semester up front) at no interest and for reasonable fees (which vary depending on the university and the amount you owe).
"These plans give you the ability to work with a cash-flow schedule," points out Gerard Papetti, a certified financial planner with U.S. Financial Services, in Fairfield, New Jersey.Smart Move No. 2: Negotiate, Negotiate, Negotiate
Close to 60 percent of students receive some form of financial aid. A college's financial aid offer may consist of grants, loans, work-study, or a combination. Know the school's deadlines for submitting your Free Application for Federal Student Aid (FAFSA) and file it and any other forms promptly -- but don't just accept the college's first offer. If you don't ask for more, you'll never get it. "Remind the aid officer if your child has other siblings at the college, or point out your student's nonacademic talents, like music or sports," recommends Theresa Rosen, a certified financial planner with Prudence Financial, in Sudbury, Massachusetts. "Each school is unique, so find out what might persuade yours."
But think carefully about your approach. Acting entitled, whining, or threatening to send your teen elsewhere can lessen the school's willingness to work with you. Instead, call the aid officer to make an appointment, be genuine and explain your situation honestly. Aid officers are bombarded by parents who all want more, but they will try to help those who really need it.
Top scholars and prizewinning athletes may score the most obvious scholarship opportunities, but those aren't the only talents that can get your child free money for college. He could be eligible for grants if he's left-handed, interested in cars, or taller than average. Numerous scholarships are available for students with all sorts of surprising talents or characteristics.
To find little-known awards, sign up with Web-based databases that compare your child's background with available scholarships. Reputable sites include FastWeb (www.fastweb.com), which has information about more than $1 billion in awards, and Scholarship Resource Network Express (www.srnexpress.com), which provides details on available funds worth some $35 million. These and other sites are free, and there's no limit to how many awards your child can apply for or receive. But be scam-savvy. If a site asks for money or claims to have award information unavailable elsewhere, consider it a red flag.Smart Move No. 4: Take Advantage of Education Loans
Some parents, reluctant to saddle their kids with college loans, may think their best option is to borrow money in their own name, despite potentially high interest rates. But the federal Parent Loan for Undergraduate Students (PLUS) was created specifically for parents who want to fund a child's education -- with the child bearing no financial responsibility. With an interest rate capped at 9 percent, these loans are currently carrying a low 4.17 percent. You can borrow the total cost of tuition and related education expenses, minus financial aid. Payments start 60 days after the school receives the money, but you can take 10 years to repay.
With even lower interest rates, various student education loans are also a good choice. Stafford Loans, which now boasts a record low 3.37-percent interest rate, allows undergraduates to borrow up to $2,625 for freshman year, $3,500 for sophomore year and $5,500 for junior and senior years. Loans come in two varieties: subsidized and unsubsidized. Subsidized loans are need based, with the federal government paying the interest until six months after your child graduates. Unsubsidized Stafford Loans aren't based on need, and interest begins accruing at once (although the student can wait until after graduation to begin paying the interest). Also available are Perkins Loans, which are need based and currently have an interest rate of 5 percent. Undergrads can borrow up to $4,000 per year with a cumulative limit of $20,000; no loan payments are due until after graduation.Smart Move No. 5: Tap Home Equity
If you own your home, you can take out a home-equity loan or line of credit and use the funds for tuition. Given the low interest rates (at present around 5 percent) and potential tax deductions for the loan interest, this could be some of the cheapest money out there, and it's worth investigating to cover whatever conventional education loans won't.
Before offering you financial aid, a school will review your assets and your child's. Thirty-five percent of a child's assets are considered available for tuition, but only 6 percent of a parent's. If too much money is in your child's name -- whether stocks, bonds, 529 plans, mutual funds, or savings accounts -- it could lower the amount of aid you'll be offered. For example, if you've saved $100,000 in your name, a college will expect $6,000 to be put toward tuition; for $100,000 saved in your kid's name, it'll expect $35,000. So any new money you set aside should stay in your account.Mistake No. 2: Paying with Plastic
Many institutions allow you to charge tuition on a major credit card, but it's seldom a good idea. Unless you intend to pay the entire balance immediately, you'll be paying interest after month one, and with rates averaging around 13 percent or higher, you could still be paying years after your kid graduates.Mistake No. 3: Raiding Your Retirement Plans
Financial advisers agree you should never take money out of your retirement plans to pay for your child's education. While you can usually take out loans for college, no one will ever lend you money for your retirement.
Originally published in Ladies' Home Journal magazine, April 2005.