College is probably the one topic that makes every parent sweat. Bringing it up instantly sends a million questions through our brains, not only about how we're going to scrounge up the cash, but about whether we're eligible for financial aid (a pretty sticky process) and what the effect is going to be on our own retirement.
When President Bush signed the College Cost Reduction and Access Act of 2007 at the end of September, we collectively breathed a sign of relief. Don't get me wrong — the act isn't a lifesaver by any stretch, but it does put a few positive changes in motion.
The most notable is an increase in the funding for Federal Pell Grants by more than $11 billion. Nothing to sneeze at, particularly because these grants go toward the tuition of lower- to lower-middle income students, and, unlike a loan, the money doesn't have to be paid back.
The other big change comes in the form of an interest rate cut on subsidized Stafford loans for undergraduates, the most common loans for financing college tuition. Over the next four years, the interest rate, currently at 6.8 percent, will be gradually reduced by half. But if you're already in the throws of paying a loan back, don't expect to see your balance drop — the cut only applies to new loans.
There's no mistaking that both components of the act are a boon to students, not to mention their parents. However, getting into and financing college is still hard work, and the effect of this act remains to be seen.
"The jury is still out, I think, on whether this is going to help families pay for college, because the real wild card is how the colleges will react. In the past, when money gets easier, we've seen increases in the rate of tuition inflation to offset the additional federal funding," says Kal Chany, author of "Paying for College Without Going Broke," (Princeton Review) now in an updated 2008 edition.
And that means it's still vitally important to have a game plan in place sooner rather than later.
Not necessarily saving, although if you can afford to fund a 529 account in addition to, but not instead of, your 401(k), then by all means, do so. What you really need to get a jumpstart on is researching your financial aid eligibility, says Dr. Michael Franzblau, founder of the Tuition Without Tears program and author of a book by the same name. Come senior year, your child is going to have to file a Free Application for Federal Student Aid (FAFSA) form that will determine how much you, as a family, are expected to contribute for college. It could be anywhere from the entire amount to zero, depending on all sorts of factors like your income and assets.
Trouble is, waiting until your child's senior year to find out that information is too little, too late in so many cases. Get an estimate early on with online calculators like the one on finaid.org, and pair it with a book like Chany's so you understand what the questions are asking and how you should respond. Remember to update the figure every year, and plan your saving and borrowing strategies accordingly.
Weigh your options
There are so many worthy schools. Chances are, your student hasn't even heard of most of them. I know the bulk of my high school graduating class went to a handful of schools, with small exceptions here and there for community colleges and the ivy leagues. You can't go wrong with looking into as many as possible because colleges vary not only in their tuition costs, but also in their ability to provide financial aid dollars. You're going to run into some who will fork over 100 percent of what you're eligible for, and others who just won't — particularly if your kid isn't a standout student. "You need to be very smart about how colleges provide aid," says Franzblau.
"You can research which colleges give out what kinds of aid, because that information is published." You want to gravitate toward those that give the bulk of their money in scholarships and grants, which don't have to be repaid.
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Shift some of the responsibility
Financially speaking, I think it's safe to assume that most kids don't have a whole lot that they can contribute toward tuition costs. But they can help out in other ways. Great grades go a long way with both admissions and financial aid counselors, and can help round up additional scholarship money. So can extra-curricular activities, travel and community service. Beginning in high school, students can take Advanced Placement classes that, if they score well on the test, will translate to college credit, easily saving you hundreds, if not thousands of dollars when the tuition bill comes.
Another way to earn credits on the cheap is taking summer classes at a local community college — just be sure to double check in advance that they'll transfer properly. These tactics also cut down on the time your child spends in college, which translates into a smaller total at the end of the ride.
Use your imagination
There are online programs sprouting up all over the place that can be a great deal if you properly research your options. Taking general studies courses through one of these, then transferring to a brick and mortar school for the final two years (and the diploma) is one way to cut costs. Another is a community or two-year college, especially if your kid is the indecisive type.
"This way, students can season themselves, find out who they really are and what they really want to do," says Franzblau. Making decisions like these before the big tuition check gets cut is never a bad idea.
With reporting by Arielle McGowen.
Jean Chatzky is an editor-at-large at “Money” magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today” show and is also a columnist for “Life” magazine. She is the author of four books, including “Pay It Down! From Debt to Wealth on $10 a Day” (Portfolio, 2004). To find out more, visit her Web site, www.jeanchatzky.com.
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