July 11, 2011 Posted by: Tech CU
Sending a child off to college can be a daunting task. It’s not just that both you and your offspring have reached a significant milestone in each of your lives, it’s also the fact that now you have to pay for four very expensive years of education. No matter how you slice it — public university or private college —tuition costs are going up and up and up with no end in sight. According to the National Association of Independent Colleges and Universities, the average tuition cost between 2010 and 2011 increased by 4.5% (this is actually down from 6% increases in prior years).
So, where to start and what to do (or not)?
First, you’ll need to figure out how much cash you can afford to spend for the next four years. Most schools allow you to set up a payment plan — dividing the chunk into ten (approximately) equal payments. This means you don’t necessarily have to liquidate investment accounts to make a huge payment all at once. Also, just because your child is starting college doesn’t mean that you stop saving. Keep putting away money towards tuition (as you hopefully have been) throughout the four years.
Don’t use credit cards to pay for your child’s college. You could end up with a huge and very costly debt load. Be realistic about what you can actually afford. Plus, be aware that some schools charge a premium—as much as 2.5% when you use a credit card.
Don’t tap into your 401(k) or IRA to pay for college. You’ll end up in hot water when it comes to retirement. Realize that there are many options when it comes to borrowing for education (but not for retirement). Which leads us to our next financing possibility — student loans.
Complete the FAFSA, which determines eligibility for Federal Student Aid loans (Pell Grant, PLUS loans, Stafford Loans). Not that you want to saddle your child with an enormous amount of debt upon graduation, but these can be very good options to cover your tuition costs. These loans also tend to be low interest with flexible repayment terms. If your student heads into certain fields (Teach for America, etc.) student loans can also be forgiven.
Don’t be “embarrassed” to divulge your financial situation to admissions officers. Going through a hard time financially can help your child become eligible for more aid and potentially scholarships.
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