Financial aid advice for parents
For most parents, college costs are the single greatest threat to long-term financial security and a comfortable retirement. The challenge of paying for college is daunting enough with one child in college, but with more than one, the costs become even more formidable, and sometimes seem insurmountable. As you work through the paying-for-college process, you should keep in mind this mantra: ”I can always borrow for college but I can never borrow for retirement.” Smart use of financial aid, student loans, and parent PLUS Loans are essential ingredients for success.
These are some of the more common myths that create parental alarm about paying for college.
There is no way I will qualify for financial aid.
This far from the truth in most cases. Two-thirds (66%) of students get financial aid, so most families will pay less than the college’s list price. Even families with incomes over $100,000 often qualify for financial aid, particularly for private colleges. In order to receive financial aid, you need to complete the FAFSA (Free Application for Federal Student Aid).
Parents making large incomes should never bother to complete a FAFSA.
Not true. While you might not qualify for need-based aid, completing the FAFSA will allow you to borrow as much money as you need through unsubsidized parent PLUS Loans and unsubsidized Stafford Loans to help pay for college and to preserve your assets. Also, filing a FAFSA is often required for merit scholarships awarded by colleges.
Parents can make their students independent in order to qualify for more aid.
At one point in time, this held true. Wealthy parents often took advantage of the rule by dropping their college-bound kids as exemptions for two years and providing them with the minimum requirements of income and assets. Now, unless there are very unusual and compelling circumstances surrounding a student’s financial situation, this is no longer possible.
Money-Saving Tips for Parents
Avoid liquidating important assets to pay for college.
Except for 529 plans, most assets – especially your retirement savings – should be left in your hands rather than in the coffers of any college. If you find that you can’t pay for college out of your normal income and the college’s financial aid isn’t enough, consider unsubsidized Stafford Loans, parent PLUS Loans, and private student loans to help protect your long-term financial security. Avoid tapping into important assets, most especially retirement savings, in order to pay for colleges. There are always alternatives.
When it comes to financial aid, the early bird gets the worm.
Financial aid is often distributed on a “first-come-first served” basis. File the FAFSA as soon as it’s available and make corrections as needed after filing. Don’t wait until your taxes are done. Use the previous year’s tax returns and provide best guess answers, and submit the FAFSA as soon as possible to secure your place in line.
Whenever possible, “bundle” your kids in college.
For families with two or more college-bound students who are close in age, consider having more than one student attend college at a time. Multiple tuition bills will significantly lower the expected family contribution, and potentially offset the cost of taking a year or two off if the student puts the time to good use. Most colleges value meaningful post-high school experience when making admission decisions, so if one of your children takes a year or two off to wait for their sibling to enter college, it won’t necessarily harm them, if they do something positive and creative with that time.
Have your students contribute financially to their college degree.
Remember, your students are the sole beneficiaries of a college education, so if you do need to borrow for college, have the student do the initial round of borrowing. Students who are expected to take out loans to pay for college, and who face the prospect of added debt with every year of post secondary education, tend to get in and get out in regulation time: four years. That sense of urgency will always translate into lower college costs.