A column on personal finance prepared by the Virginia Society of Certified Public Accountants
IMPORTANT LESSONS FOR THOSE WHO FAILED TO SAVE FOR COLLEGE
(August 20, 2003) – If you got a late start on college savings or saw your investment portfolio dwindle in the latest economic downturn, don’t despair. The Virginia Society of CPAs says there are ways you can save money and obtain the funds to make it possible to meet those ever-rising tuition costs.
Implement a Savings Blitz
Depending on how much time you have before enrollment, redoubling your savings efforts may enable your child to close all or part of the gap between your resources and tuition bills. And, by continuing to tighten your belt during the college years, you may be able to foot at least part of the bill through current income.
You can also schedule your tuition payments in a way that suits your budget. Many schools offer a tuition management service that, for a fee of about $50, allows you to spread the school’s annual tuition into eight or ten monthly payments.
Appeal for Additional Financial Aid
Financial aid is also an option. Financial aid packages are sometimes negotiable, particularly when there has been a drastic change in your financial circumstances since you first applied. If you’ve lost your job, incurred high medical expenses, or experienced some type of financial hardship, write a letter to the school explaining the situation.
Seek Out Scholarships
Your son or daughter doesn’t have to be a straight A student or a star athlete to qualify for a scholarship. Many are available to students with special interests or skills. For example, scholarships are available for Swedish Americans who play the oboe and camp counselors who plan to study special education. Of course, these scholarships aren’t always easy to find. The Internet is a good place to start. If your child is still in high school, the school’s college guidance counselor may be able to help.
Turn to Government Loans
Although some parents are reluctant to take on additional debt, federal student loans can be a relatively inexpensive source of education funds. Federally funded PLUS loans allow creditworthy parents of college students to borrow up to the full amount of tuition. The interest rates on PLUS loans are variable with a 9 percent cap and you must begin repayment 60 days after the funds are disbursed.
Stafford loans are available for students. A freshman can borrow $2,625; the maximum loan amount increases to $5,000 by the time your student is a junior. In most cases, repayment begins six months after graduation. If you expect your child to bear part of the monetary burden, this may be a good option.
Tap Your Home Equity
With mortgage rates at historic lows, a cash-out refinancing or home equity loan are attractive alternatives that offer a lump sum payment you can use to meet college costs. This strategy works particularly well for families who have insufficient cash flow but a good deal of equity in their homes. For some borrowers, a better alternative is a home equity line of credit that allows you to dip into a cash reserve as needed. As an added benefit, the interest you pay on home equity loans and lines of credit may be tax deductible. However, it is important to keep in mind that borrowing against your home is not a decision to be taken lightly. Failure to meet payments could put your home at risk. If you must borrow, be sure you limit the amount to what you can reasonably repay.
Focus on Less Expensive Schools
It’s also wise to do some comparison-shopping when looking at educational institutions. In some instances, location may cause a school to be more reasonably priced than another school. Also, keep in mind that public state colleges generally are less expensive than private schools, particularly when the student qualifies for resident tuition rates. Attending an in-state school can also defray travel expenses and long distance phone bills. Another option that is growing in popularity is to attend a community college for the first year or two and then transfer to a brand-name four-year school.
There’s No Such Thing as a Retirement Loan
A word of caution from CPAs: do not use retirement savings to pay college tuition bills. More resources are available for funding an education than for financing a retirement. In addition to the tax implications of withdrawing from retirement savings, you’re giving up the valuable earnings. CPAs recommend that you first look at alternative financing arrangements for your child or, as a last resort, postpone college for one more year until you have saved sufficient funds to meet all or part of the tuition bill.
The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at www.vscpa.com.
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