Where do the years go, eh? Seems like yesterday when you were discussing putting away funds for your child’s education, and before you know it, they’ll be applying for college. But you’re fretting because you doubt you have saved enough, and you’re frankly scared to find out. It’s time to face the music, but don’t despair, since there is a myriad of ways to make sure your child goes to college — and can stay there. Here’s what parents need to know about paying for college.
The Issue
Tuition and fees for a four-year private college run an average of $32,410. That’s not an amount that most people have stuffed away in socks. Fortunately, there are several ways parents can help with their children’s secondary education that don’t include toting assets to the pawn shop. To wit:
- Go for a federal loan. If your child is a dependent, you’ll have to fill out part of the Free Application for Federal Student Aid, which tells you how much aid your child will receive through grants, federal loans, etc. You’ll need to provide financial info such as your income and assets, and yes, a credit check is involved. The amount you can borrow is the cost of tuition, with the amount of any other financial aid subtracted. Because the loan is government issued, the interest rate will always be fixed. You just may be offered a Parent PLUS Loan in your name.
- Try to get a private loan. If government loans are a no go, parent loans for college can be had through a service such as Juno, which partners with private lenders to provide more-affordable student loans. When applying for a private student loan – you or your child – you’ll need info handy including social security number, income, a listing of assets, monthly rent or mortgage amount, most recent tax return, and a recent pay stub. Note that more than 90% of private student loans are co-signed, so that’s an option too. If you want to know how to pay off student loans fast, strategies await.
- Establish a 529 Plan. Through this popular savings plan, you’re allowed to contribute more than you would with a classic savings plan. You’re also permitted, without penalty or tax, to withdraw cash to pay for expenses associated with college.
- Hit up your retirement funds. We don’t recommend anything that takes away from your retirement, but you must know all your options. Those do include using your retirement savings or home equity to fund your child’s education. If you’re under age 59 ½ with an IRA account, you could dip into that retirement account. The good news is you won’t get clobbered with early withdrawal penalties but, depending on whether you have a Roth IRA or traditional one, you may have to pay taxes on the total. You also may be able to get a 401k loan, but you’ll need to determine what it would cost you to do this.
- Use home equity. If you own your home, you can leverage the equity to get cash for your child’s education. Your rates will likely be low, too. Why? Because you’re in danger of losing your home should you default on loan repayment. So, the lender isn’t very worried.
Now that you know what parents need to know about paying for college, you can move forward with confidence to help your child gain the education needed to compete and survive in this world. Just be sure to get started as early as possible, and if you need help with loans, contact Juno.