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 The good news is that most people will pay significantly less than
the sticker prices published by colleges, which currently average
just under $20,000 a year for public four-year university courses,
over $40,000 per annum at private colleges, and $60,000 at many
elite schools.
The average net price - what families actually pay for tuition,
fees, room and board after deducting grants and scholarships - was
$12,830 for public colleges and $23,550 at private institutions for
the 2014-15 academic year, according to the College Board.
That's still a sizeable chunk of change, and doesn't include books,
supplies or transportation costs.
Families with higher-than-average incomes, or whose children attend
colleges that offer measly student loan assistance, tend to pay a
lot more.
If you haven't been saving since your child's birth, or you have,
but not nearly enough, here's what to do now:
PICK A CHEAPER COLLEGE
Using estimated family-contribution calculators from the College
Board or individual colleges can give you a better idea of which
schools may meet much of your financial needs, which ones may give
merit scholarships - even if you're not needy, and which aren't
generous in the least.
College consultants recommend applying for at least one financial
"safety school" - one whose costs you know you can handle - in
addition to "target" schools that you can pay for with a stretch of
your resources, and "reach" schools that may be out of your range
but could surprise you with generous financial aid.
CONSIDER THE ALTERNATIVES
Having your child attend a nearby school so he or she can live at
home at least for the first year or two, can dramatically cut the
cost of college. The average net price for room and board was $9,800
at public schools and $11,190 at private colleges.
Attending community college for a while can save money as well, but
the dropout risk rises. Your student should make sure his or her
community college credits will transfer to the desired four-year
school.
A gap year also may be a good option, especially if the student has
no idea what to study, or has a job that can help offset college
costs.
TRIM DISCRETIONARY EXPENSES
Paying as much of the bill as possible out of your current income
will help you minimize the debt that you or the student need to take
on. That means employing the usual budgeting hacks: eating out less
and curtailing vacations.
If the student attends a school more than 100 miles away and won't
be driving there, you may qualify for a break on your auto insurance
premiums.
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TAP YOUR ASSETS
Selling non-retirement investments and other assets does more than
just help you pay for school. Removing them from your balance sheet
could qualify you for more financial aid in the future.
Check with a tax professional first, though, since selling typically
has tax consequences. You also can withdraw the amount you
contributed to a Roth IRA without taxes or penalties, but make sure
you won't need the money for retirement.
CRAFT A LOAN STRATEGY
Anyone who borrows for education should keep in mind that lenders
will approve far more debt than you can comfortably repay.
A good rule of thumb is to limit student loans to the annual salary
the borrower expects to earn during the first year out of school. A
more conservative standard is to limit all borrowing to federal
student loans, which have fixed rates and numerous repayment
options. (Private loans typically have variable rates and far fewer
consumer protections.)
Most undergraduates can borrow a maximum of $5,500 in federal loans
their first year and $31,000 in total for an undergraduate degree.
Independent students and those whose parents can't get approved for
PLUS loans can borrow up to $57,500.
Parents should limit their borrowing to what they expect to pay off
within 10 years. If borrowing would interfere with your ability to
save for retirement, though, you probably shouldn't take on the debt
at all.
INVESTIGATE HOME EQUITY BORROWING
Current PLUS (federal student loan) rates of 7.21 percent are high,
compared to what banks charge for home equity lines of credit
(around 4 percent for people with good credit).
Unfortunately, HELOC (home equity line of credit) rates are variable
and likely to go up. If you can pay the debt off within a few years,
though, Hellos may well be the cheaper option.
(Editing by Beth Pinkser and Bernadette Baum)
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