It seems like just yesterday they were outgrowing their baby clothes, and now your kids are graduating from high school and starting to look at colleges. Obviously, you want to give your kids the best start in life you possibly can. But these days, even a year of college tuition can cost as much as your entire undergraduate career did in 1989. And with what you’ve managed to put aside in the “college fund,” you’ll barely be able to cover the bookstore bill. What now?
Before you take out a second mortgage on your home, make a realistic assessment of what you can afford and what’s going to be manageable for both you and your child in the future. A ten thousand dollar loan may seem reasonable for your child’s freshman year, but be realistic. Do you have younger children who will be college-bound in the next year or two? You might not be able to do as much as you would like to help with college education costs, but there are other options for borrowing.
First, let your child borrow in his or her own name first. Even if you plan to pay back the loans yourself, it’s the way to get the best student loan rates available. The Stafford Loan Program has the lowest student loan interest rates at 6.8%, and while it only lets you borrow $2,625 toward freshman year tuition, that maximum rises to $5,500 when the student is a junior.
For parents, PLUS loans are a federal loan program that allows you to borrow as much as you need to fill gaps in federal aid, for a low fixed rate of between 7.9 or 8.5 percent.
Finally, before you shell out for the best college money can buy, make sure your child is applying to a range of schools that provide options for financial aid that they might qualify for – such as scholarships, grants, or in-state discounts on tuition. And don’t be afraid to discuss college costs frankly with your college-bound child. The financial example you set now will not only help your child prepare for college, but for the financial planning challenges they will meet in their own adult life.