Money

Paying for college without breaking the bank

A college education isn’t cheap.

Of course, you know this. In fact, if you’re the parent of a college-bound student, you may be having a difficult time devoting mental energy to any other subject.

It now costs an average of nearly $13,000 for a full year of tuition, room and board at a public university and nearly $28,000 at a private school. Perhaps all those zeroes don’t faze you because you’ve successfully squirreled away plenty of money for your child’s education via a 529 college savings plan or some other means. If so, good for you!

But what if you haven’t come close to pulling that off? Then the following tips can provide you with additional ideas about how you and your child can drum up money for school. The links contained within many of these tips and the resources at the end of this column can provide you with much more detail about specific strategies if you need it.

1. Hunt down scholarships. Scholarships are the best way to go because you never have to repay the money. Contact local organizations in your community about scholarships, and do searches on the Internet through sources such as FastWeb, FinAid, the College Board and the Financial Aid Resource Center.

2. Go crazy applying for grants. Grants are great because they don’t have to be repaid either. You can learn about grant possibilities here. Also consider whether these two new grants might be appropriate: the Academic Competitiveness Grant, which offers up to $1,300 for students who have completed a rigorous high school program; and the National Science and Mathematics Access to Retain Talent, or SMART, grant, which offers up to $4,000 for undergraduates majoring in physical, life or computer sciences, math, technology, engineering or a foreign language “determined critical to national security.”

3. Time your FAFSA application carefully. If you’ve begun navigating the financial-aid universe, you know about the need to file a Free Application for Federal Student Aid, or FAFSA, in order to secure federal grants and different forms of state aid. Families are typically encouraged to complete this form as soon after Jan. 1 as possible for the upcoming academic year. This year, though, you may want to wait until you’re absolutely sure you’ve filled out the form correctly. New rules affect the way you should report your assets and your child’s assets. For instance, 529 savings plans, Coverdell education savings accounts and prepaid college tuition plans are considered parents’ assets, not students’ assets. If you accidentally list such assets as your child’s instead of your own, your child’s chances of receiving aid could be wrecked. For more details about important changes in the law, check out Sandra Block’s excellent “Your Money” column on the subject.

4. Borrow as a last resort. If student loans are unavoidable, opt for subsidized loans when you can. The federal government pays the interest on such loans while you’re in school and during the grace period before repayment begins. For details, turn to the U.S. Department of Education’s Federal Student Aid Information Center, Nellie Mae and SallieMae. You also could consider applying for a loan through MyRichUncle.com.  The entrepreneurs who started this Web site look beyond credit histories only and do a “holistic” examination of students’ grade-point averages, programs of study and test scores when deciding how to farm out loans.

5. Pick the right school. Sure, the country’s most elite private schools have an almost irresistible appeal, but so many other options exist that will allow you to spend so much less. Remember all those high-caliber private schools out there that don’t have the name recognition of Harvard but still need to fill their classrooms. Many of them offer “tuition discounts” (i.e., financial aid). And of course, you could save a bundle by choosing a public university in your state — or, better yet, by opting for a community college for the first two years of that four-year degree.

6. Weigh the possible benefits of a gap year. Have you heard about the “gap year” craze, which extols the virtues of taking a year off between high school and college — or, in some cases, between undergraduate and graduate school? There’s even a Web site dedicated to helping students figure out exciting things they can do with their year. The crucial detail about this year, though, is that the student not stay home with Mom and Dad. The whole point of the time away from school is to instill confidence, street smarts and a reality check about how much things cost. And in purely practical financial terms, this extra year gives parents additional time to save for college, and it gives students the potential to jazz up their resumes and college applications and save at least some money for the whole college effort.

7. Have your kid contribute. Here’s a little bit more food for thought on this subject. The idea behind this tip isn’t to plunge your child into financial ruin just as he or she is trying to get started in life. Instead, the objective is to have your child feel invested in the college experience and understand its true costs. He or she can help pay for dorm furnishings, help fill out financial aid applications, or hold down a job in the summer months or for 10 to 15 hours a week during the academic year. Your child also could agree to pay for the final two years of school if you pick up the tab for the first two years, even if this involves taking responsibility for student loans during that period.

8. Pursue tax credits if you can. If you’re a single filer with an income of less than $55,000 a year or a couple with an annual income of less than $110,000, you could qualify for a Hope credit and a Lifetime Learning credit to help defray college costs. For details, see this Internal Revenue Service form (pdf file).

9. Don’t give up on tax breaks if your income is too high. If you make too much to qualify for a tax credit, there are still steps you can take. A recent article by certified financial planner Jim Grote in the Journal of Financial Planning explains how you can gift assets, shift income and pursue other strategies that could give you valuable tax benefits and make paying for school that much easier.

10. Parents, don’t blow your retirement savings. Remember: Your kids can always borrow for college, but you can’t borrow for your retirement. It may feel natural for you to give everything you possibly can to your children — but they’ll ultimately thank you if you take care of yourself in this department.

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