Options for dealing with rising college tuition
By Sandra Block
USA Today
The cost of college, like the cost of gas, is skyrocketing. But there's a difference: Gas prices fluctuate. College costs show no sign of going anywhere but up.
State legislators, struggling to make up for recession-induced budget deficits, have boosted tuition at state colleges and universities by as much as 20 percent. The increases are coming at a time when college is more important than ever. Adults with college degrees earn on average more than $1 million more over their lifetimes than workers who have only high school diplomas, according to the College Board.
The increases are particularly tough on parents of children bound for college this fall. They don't have time to boost savings, and most 2002 scholarships have been awarded. There are, however, steps you can take in the next few months to bridge the gap between what you've saved and what you'll need. Some options:
• Seek a better aid package. Most families of college-bound seniors have already completed financial aid applications and will receive award offers soon. But if the amount you're offered falls short, talk to college financial aid representatives. Negotiating for a bigger award package "used to be taboo, but increasingly, schools are more open to it," says Trent Anderson, managing editor of Kaplan's "Conquer the Cost of College."
• Review the information you included when you originally applied for financial aid. If your financial situation has changed — you lost your job, for example — inform college financial aid representatives. And if your child received offers from several institutions, use them as leverage. "In almost every case, it helps to have an offer from another school," Anderson says.
• Consider a PLUS loan. The interest rate on PLUS loans, federal loans available for parents of college students, is now 6.79 percent. The rate is adjusted annually on July 1, based on Treasury bill rates, but can't go above 9 percent. Any family can qualify for a PLUS loan up to the amount of college expenses, regardless of income, says Mike Darne, managing director of Wiredscholar.com, a Web site operated by Sallie Mae. You'll have to undergo a credit check, but even families with less-than-perfect credit usually qualify, he says.
Another advantage to PLUS loans: You can apply for one up until the day your child starts school, says Maureen McCarthy Mello, vice president for Academic Management Services, which provides college loans and payment plans. Most lenders process applications quickly because they know many families wait until the last minute, she says.
You can find more information at www.wiredscholar.com, or through your financial aid office.
• Use home equity. A cash-out refinancing, home equity loan or home equity line of credit can provide extra cash to pay for college, often at competitive interest rates, says Jay Farner, vice president for Quicken Loans.
A cash-out involves refinancing your mortgage and taking your equity out in cash. A home equity line of credit gives you the right to draw against the equity in your home, up to a predetermined amount. The interest rate varies, depending on market conditions. A home equity loan is a second mortgage: You borrow a specific amount, usually at a fixed rate.
While rates on home equity loans are higher than those on lines of credit, some parents prefer the former because they can lock in a rate, Farner says. The average interest rate for a home equity loan is now 7.3 percent, compared with 4.48 percent for a home equity line of credit, according to www.bankrate.com.
• Sign up for a payment plan. Tuition payment plans let you pay for college in monthly installments, a useful tool if you can't come up with enough cash by the beginning of the fall semester. Most plans charge no interest, although you'll usually pay a small enrollment fee. AMS, for example, allows families to spread out payments over 10 to 12 months for a $55 annual fee. Your financial aid office can provide more information.
• Give your children stock. If you sell securities to pay for college and your tax bracket is above 15 percent, you'll pay 20 percent in taxes on your long-term capital gains. Your child, however, is probably in the 10 percent or 15 percent tax bracket. He or she can sell the stocks and pay a 10 percent capital gains rate, or 8 percent if the stocks have been held at least five years. Your child will inherit your holding period when you give him or her the stocks, so he or she won't have to hold on to them to benefit from the lower long-term rates, Anderson says.
