Parents often find the first bill from their child’s college a real eye-opener. When they do the math, they realize their current cash flow and financial aid insufficient. Where can parents and students alike turn to make up the difference? Here are six college aid options to consider.
Federal Government Stafford Loans
You can apply to borrow money for your school until May of the current school year. Undergraduates can borrow $2,625-$5,500 per year, while graduate students can borrow up to $18,500. For the 2008-09 through 2011-12 school years, subsidized Stafford loan interest rates for undergraduate students drop to 6.0%, 5.6%, 4.5% and 3.4%, with a return to 6.8% in 2012-13. Loans for graduate students throughout the same period remain at 6.8%. The government will pay interest on the loan for students who can demonstrate need. Students who do not demonstrate need can defer interest payments until after graduation, but interest will be added to the principal balance. If you must borrow from a bank, consider Sallie Mae, a bank affiliated with the Student Loan Marketing Association.
Parent Loans for Undergraduate Students (PLUS)
PLUS allows parents to borrow the total cost of tuition less the amount of financial aid the child is eligible to receive from the school, with a fixed interest rate capped at 8.5%. Unlike the Stafford Loan, the interest on a PLUS cannot be deferred.
Deferred-payment
Although most colleges bill students twice a year, Academic Management Services offers a monthly payment plan to spread out the cost.
Home-equity loans
When applying for this type of loan, your bank will charge the prime lending rate plus one-and-one-half points. The interest on the loan is fully tax-deductible. Furthermore, the equity reduction in your home improves your chances of receiving more financial aid in the future.
Borrow against your pension
According to federal law, you can borrow against the assets in your tax-deferred pension, profit-sharing and 401 (k) plans if you need money for college.
Borrow from your IRA
Consider this your very last option if possible. According to federal law, you can borrow funds against your IRA on the condition that you can replace the funds within 60 days. If you cannot replace the funds within 60 days, you will be taxed on the amount withdrawn, but you won’t incur a 10% penalty because the funds went towards qualified higher education purposes such as tuition.
Families should become aware of the options they have at their disposal towards paying for the college education of their children with the understanding that they’re not alone. The federal government provides loans with manageable interest rates and terms for students and parents alike. Even if they don’t turn to the government for help, they have additional options. Children should not be denied higher education opportunities just because of a perceived lack of funds or insufficient financial aid. Families just have to know where to look.
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