What is the best way to pay for college without going into a huge debt?
Answers | 3
Allow me to be brutally honest with the parents of college-bound students. Unless you pay wholesale for a college education, you’re paying too much. If you’re like most parents, you’ll be duped into paying retail but you should think smarter to pay wholesale for a college education.
If you will start thinking like a consumer of higher education, rather than like the sucker colleges hope you to be, you’re going to save yourself a boatload of money. Many parents have no clue and get no help and like a pack of lemmings will end up jumping into a pile of debt. But the fortunate ones reading this know that they can get college at wholesale and save ON the cost of college.
Here are some things you could do – not anywhere near an exhaustive list:
Start a business to hire your child to lower your taxable income
Shift low-basis assets to children in lower income tax brackets to save on capital gains taxes
Coordinate with relatives to fund college savings accounts in a way that doesn’t hurt financial aid chances
Select the right school at the right price with the right kind of aid that will lower your dependence on loans
Find the right mix of federal and private student loans that can be refinanced or consolidated in the future.
Choose a school that offers a great financial aid package: There are database search tools that will provide you with a comparison of the kinds of aid packages available.
Consider post-college service programs: By joining certain community service programs some or all of your student loans may be forgiven.
You can also consider scholarships, joining the National Guard or military or attending colleges overseas (US students can go for free to colleges in Germany).
Whatever you choose to do, don't simply rely on going to the local in-state public university or college. You're limiting yourself and may be paying more. While private schools have a higher sticker price, they have deeper pockets for need- or merit-based aid. And they very often discount the 'sticker price' to attract talented students that round out their student population.
1. Cash flow - There is likely some amount of money that you can afford to contribute on a monthly basis toward the cost of college. If you can afford roughly $0.00, you're not alone. There are 4 more ways to pay.
2. Liquidate assets - You may have saved using a 529 plan, a Coverdale, an UGMA/UTMA, maybe you have some real estate you can sell, a classic car, etc. Now, there are right and wrong ways to use/spend investment and savings vehicles so be careful there. Again, you might not have any assets to liquidate.
3. Student Loans / Parent Loans - Students can get a small amount of loans from the government. $5 to $8k per year. After that, mom or dad will have to co-sign. That's where you can get into trouble. You're already trying to avoid these, so good job.
4. HELOC - If you have equity in your home, you can open a Home Equity Line of Credit. You'll probably have a variable interest rate and there's no guarantee that the bank won't take it away from you before you need it. However, your payment will be low.
5. Mortgage refinance - From a cash flow standpoint this is the best option. You fix a payment for 30 years and take out all of your equity. Then, you have the money available to you to pay for college.
NOTE #1: The amount of financial aid you qualify for is dependent on mom & dad's income, mom & dad's assets as well as the student income & assets. For some families, there are strategies that you can use to reduce your reportable income and assets thus increasing the amount of financial aid you qualify for.
Note #2: Not all colleges are created equal. Once they determine your NEED (based on your EFC. See note #1.), some schools will give you all of your need and others won't. Make sure your child is looking at schools that meet 100% of need.
Note #3: You should have a line in the sand that your son/daughter knows where if the school costs more than that amount then you're out.
If some of my terms in this don't make scene, then I highly recommend that you visit a College Funding Advisor. 99.99999% of financial advisors have no clue in this area.
Shameless plug: I'm a trained College Funding Advisor. You can find my contact information in my profile.
I hope this helps. Please let me know if I can be of further assistance.