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💰4 ways for parents to pay for college Thumbnail

💰4 ways for parents to pay for college

This time of year, we get a lot of questions on college funding. This is most often from families that haven’t saved enough for college and need to utilize loans to front the cost. If you find yourself in these shoes, here’s what you need to know:

First thing first: Fill out the FAFSA! This is the Free Application for Federal Student Aid and it makes you eligible for federal student aid. This includes the “free money” in the form of grants as well as work study opportunities for your child that can go a long way to reduce the cost. It’s a no loss situation to fill out the form and where we start when it comes to helping fund tuition bills.

When loans are necessary, the best place to start is typically with federal student loans. These are loans issued in the name of your child and allow for borrowing limits that start at $5,500 for their freshman year and increase incrementally from there. While the borrowing limits are not high, the interest rates are competitive. Additionally, the flexibility and protections of federal loans is often preferable to private loans.

Another form of borrowing in federal loans is Parent PLUS loans. These are loans taken out in the name of the parent but operate a bit differently than the loans available to students. They allow for borrowing up to the cost of attendance, however they can be dangerous loans for parents to take. The interest rates are higher than what is offered to students and interest begins accruing immediately.

The alternative to federal Parent PLUS loans is private student loans. Like the PLUS loans, the interest rates are elevated from what you can expect with undergraduate student loans. Loans differ by lender, but generally these private loans require a cosigner if taken out in the name of the student. The downside to these private loans includes loss of loan forgiveness programs and income driven repayment plans that are offered with federal student loans.

Lastly, another common funding option can be tapping the equity in your home to cover the cost. This comes with additional risks as leveraging your home risks the property if you borrow more than you can pay back. Another downside is that there is no deductibility on the interest when using a HELOC to fund college. The upsides of the HELOC include relatively low interest rates and flexibility on payments.

We should note that choosing an affordable school is the best way to prevent you from taking on large amounts of loans to fund college. For families with juniors in high school that are looking to strategize to reduce the cost, you can CLICK HERE to set up a free intro call to learn more about what opportunities may be available for your child.


All the best,

Andrew Holmes, Certified College Planning Specialist™

Andrew@PlanWithFPS.com

617-630-4978

 

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.

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