Those college envelopes were all such a delight when they arrived in April, bearing acceptances. Now, stuffed with bills, they are much less fun.
The moment of reckoning has arrived for parents of college bound students. And many -- perhaps most -- are still unsure of how they are going to pay for it all, even as they help their child pack boxes for the dorm.
Luckily, there are a lot of last-ditch emergency ways to squeeze out those college funds. If junior already has his first semester's schedule and you still haven't raised the cash, here are some options that can get the two of you through.
Contact the school and find out what sort of payment plan they offer. Some will let you pay monthly, or quarterly, instead of all up front. Others will let you put the tuition payment on a credit card. That can get expensive, but if you're using a cash rebate card and just trying to spread those payments over a few months, it can tide you over. Don't use a credit card if you expect to carry that debt for more than a few months.
Borrow money. You can always walk into a bank and get a loan to cover college costs, even if you never filed any financial aid forms. But next time around, file them. They will enable your student to get federally backed Stafford Loans and you to get Parents Loans at favorable rates, even if your family doesn't qualify for other sorts of financial aid.
Tap your house. Home equity interest is tax deductible, and other than buying a home, it's hard to find a more worthwhile use of your borrowing power. Like a house, the value of an education appreciates every year.
Use your IRA. You can take money out of an individual retirement account to pay tuition, though this should not be your first choice. You will still have to pay income taxes on the withdrawals, but you won't have to pay the 10 percent early distribution penalty typically levied on IRA withdrawals that occur before you are 59-1/2. But be careful about your timing: If you take the money out in one year and pay the tuition bill in another, the Internal Revenue Service will most likely disallow the break on that 10 percent penalty, with the U.S. Tax Court's backing.
But keep in mind that your child will have more years to pay back student loans than you will to replenish the retirement kitty.
Simply short your retirement contributions for a few years. If you've been good about feeding your 401(k) for all the years leading up to this, it might not hurt your future too badly to simply cut back on your contributions for the years your child is in college.
Give assets to your child. If you have some shares of stock that you've been holding for a while, don't sell them to pay the tuition. Give them to your child, who is presumably in a lower tax bracket. Let her sell the shares and pay the tuition bill.
Put the kid to work. A part-time job can cover books and some bills, and help your child feel more confident in the world. Encourage your child to develop a skill so he can make more money than he would in a menial job: Students who are able to tutor or fix computers or teach guitar can make good money.
Consider creative alternatives. Kids can often fulfill many of their basic requirements at a cheaper community college during their summers, limiting the number of full-fare semesters you have to pay for. They can defer their entrance by six months to a year, and save up money before they go to college. They can squeeze four years of schooling into three years, plus a couple of summers. Or they can go to school slowly, taking fewer credits and working more hours. They can go to a cheaper school, especially for the first year or two before transferring to Dream U ... if they still want to.
Consider buying a home in their college town. Your child can live in the home, collect rent from roommates and get paid a salary by you for running your investment property. He can use all of that money to pay some school bills and you can watch the property appreciate. This real estate investment idea worked better before real estate started escalating a few years ago, but it can still work, particularly in college towns that don't have the same rabid real estate market as some of their big city neighbors, and for families who have carefully analyzed the cash flow issues involved.
Ask Grandma. More and more grandparents are helping their kids' kids through college. If they write a check directly to the university, it doesn't count against tax-free gift limits. If the grandparents can afford to help, they might take pleasure from doing so.
Scrounge and you'll muddle through. Like most parents of college kids, you can drive your car a few more years, limit family vacations in scope or destination, host a yard sale or two, and tighten the belt. Many parents look ahead to the college years and fear they are impossible. Before they know it, those years are over and they afforded it somehow. You will too.