If you are planning to help finance your child's college education, here are some practical tips that can help reduce your burden.
When your child gets an acceptance letter to college, you might feel excited – but also worried about money.
College can be a huge expense. The idea of paying five-figures per school year might leave you feeling overwhelmed.
If you plan on helping your child finance their education, and you could use some help, read on for practical tips to make college less of a financial burden.Review Financial Aid Packages
The first thing you need to do is review all the financial aid or award packages colleges sent you upon acceptance. These should break down what aid is being offered, and what you’ll be responsible for.
Are you unclear on anything in the award letter? Don’t be afraid to call up the Financial Aid office and ask for clarification. They understand you’re concerned. After all, you wouldn’t blindly sign for a mortgage, right?
If your financial situation has changed since you filled out the FAFSA application, you need to call the Financial Aid office and inform them. The amount of aid your child is eligible for may have changed.
Additionally, if you don’t think your child has enough aid, look for scholarships and grants. You can always inquire about work-study opportunities on campus that may be available to your child as well.Dispersing Funds
If you have savings within a 529 plan that you need to withdraw to pay for college, you can ask the plan administrator to issue a check to the account owner, the student, or the school.
There's no penalty for issuing a check to the account owner or the student as long as the funds are used for qualified expenses, though you'll need solid documentation of these expenses in case the IRS inquires. Make sure to pay these expenses in the same calendar year that you withdraw the funds.
Issuing a check directly to the school makes accounting easier, but might impact your financial aid package: some schools view 529 as 'scholarship' money and reduce their financial aid offers accordingly. If the account owner is a "third party" like a grandparent, there's increased risk of the school viewing this as 'scholarship' income; in these instances, it's better to change account ownership to the parent.
When it comes to how loans are disbursed, the process is hands-off. The lender will credit the funds to your child’s account at school and apply it toward necessary expenses, such as tuition and room and board.Maintaining Financial Aid
You want to make sure your child’s financial aid package will hold steady and cover them throughout their years away. If there aren’t any drastic changes to your financial situation, your child’s coverage should stay the same.
However, there are a few factors out of your control that may have an impact on their aid.
One is the school itself. Colleges are notorious for raising tuition every year. Luckily, according to collegeboard.org, tuition only rose 2.2 percent between the 2004-2005 and 2014-2015 school years for private four-year schools, and 3.5 percent for public four-year schools.
Second, if your child has any scholarships, know the required GPA they need to keep for them. Your child may get a warning or a second chance to raise their grades, but scholarships can be revoked. If your child’s GPA drops dramatically, they may even become ineligible for federal aid.Don’t Forget Saving For Retirement
Helping your child afford higher education shouldn't come at the expense of your retirement.
If you’ve taken on student loan debt that you'll repay on behalf of your child, you need to learn how to balance saving for retirement and repaying the loans.
Direct PLUS loans and most private loans enter repayment after being fully paid out, according to studentaid.ed.gov. Be ready for that by fitting the payment into your budget beforehand.
If you’ve been steadily saving for retirement, try not to make any changes. Make sure you’re contributing enough to your 401(k) to be eligible for your employer’s match, if you have one. Otherwise, aim to max out any IRAs you have.
The biggest mistake you can make is putting off saving for retirement because you overextended yourself with student loan debt.
Feeling uncertain about being able to balance all of your financial goals? It could be a good idea to sit down with your financial advisor to go over your options. Work together to create a plan that will lead you to a successful retirement.Having Difficulty Paying?
Making room for student loan payments doesn’t have to be difficult, especially if you have a Direct PLUS loan.
While this loan needs to be repaid after it’s disbursed, you have the option to defer it if your child is still enrolled in school at least half-time. You can also apply for a six-month deferment after your child has graduated or dropped below half-time status.
Be aware that deferring your loans stops your payments, but interest still accrues. It’s best to start repaying as soon as you can to avoid the capitalization of interest once the deferment ends.
You also have two repayment options – graduated repayment and extended repayment. Both options will make it easier to manage payments in the beginning.
If you need help making payments on private student loans, call your lender immediately. Some may be able to offer you assistance.
Don’t forget that interest paid toward student loans is also tax deductible.Be Prepared
By reading this article, you’re already a step closer to being financially prepared to handle your child going off to college.
Don’t let the cost get in the way of sharing in the excitement and joy. Sending your child to college is a momentous event. The more confident you feel about your financial plan, the more you'll be able to relax and enjoy the experience.
By Paula Pant.
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