Paying for college in an economic downturn
Your stocks are down and college tuition is rising. How do you pay for your child’s education in an economic downturn?
Answering this question depends on how far away your child is from going to college. If your child is three years old, you have time for the stock market to turn around. But if your child is within two years of attending college, you’ll have to take a different course of action. Start by evaluating your family’s individual circumstances – beginning with your current savings and investments for your child’s education.
In Pictures: Obtaining Credit In A Bad Economy
What You Have: Savings and Investments
If your child is 10 years away from college, use economic downturns as warning signs for what can happen to stocks and bonds in a sour economy. Either look over your investment accounts yourself or with your investment advisor to verify that your account is balanced based on risk levels you’re comfortable with for the long-term. If your child is within two years of attending college, move your investments into extremely safe investment vehicles such as savings accounts and money market accounts .
But what if, with only two years until your child attends college, your stocks have dropped in value below what is needed for your child to attend the school of his or her choice? It’s still best to get your money out of risky investments. Even if you’re not happy with the current value of your 529 plan or other investments, taking the risk that your investments will become further devalued is not advisable. Base your choices on what money you know is available, not just for your child’s freshman year but for all the way through to your child’s college graduation. The only way to do this is with relatively safe investments. (For more information on choosing the right risk level, see Personalizing Risk Tolerance.)
What You Can Get: Federal and Private Loans
Federal and private loans can bridge the gap between the money you have available and the full costs of your child’s college education. Start by determining your federal financial aid options the year before your child attends college. The Free Application for Federal Student Aid (FAFSA) is used to evaluate your child’s financial need based on your income level and assets. Colleges you select on your FAFSA will receive your income and asset information, and let you know what college or federal grants your child may qualify for, as well as the amount of federal loans your child is eligible to receive. You don’t have to accept these loans, but knowing your options will help you evaluate the feasibility of your child attending each particular school.
If federal loans aren’t enough, private lenders can also provide needed funds (Learn more about paying back multiple loans in Should You Consolidate Your Student Loans? ) Compare rates among multiple lenders. Because private loans generally have variable interest rates , ask the lender to discuss what your payments could escalate to if interest rates were to rise. You must be prepared to make the payment even if the rate changes. Also, ask both the high school guidance counselor and the college admission counselor for estimated salary ranges your child can expect after graduation to help you determine how much of that salary can contribute to paying off the loans.
Your stocks are down and college tuition is rising. How do you pay for your child’s education in an economic downturn?
Answering this question depends on how far away your child is from going to college. If your child is three years old, you have time for the stock market to turn around. But if your child is within two years of attending college, you’ll have to take a different course of action. Start by evaluating your family’s individual circumstances – beginning with your current savings and investments for your child’s education.
In Pictures: Obtaining Credit In A Bad Economy
What You Have: Savings and Investments
If your child is 10 years away from college, use economic downturns as warning signs for what can happen to stocks and bonds in a sour economy. Either look over your investment accounts yourself or with your investment advisor to verify that your account is balanced based on risk levels you’re comfortable with for the long-term. If your child is within two years of attending college, move your investments into extremely safe investment vehicles such as savings accounts and money market accounts .
But what if, with only two years until your child attends college, your stocks have dropped in value below what is needed for your child to attend the school of his or her choice? It’s still best to get your money out of risky investments. Even if you’re not happy with the current value of your 529 plan or other investments, taking the risk that your investments will become further devalued is not advisable. Base your choices on what money you know is available, not just for your child’s freshman year but for all the way through to your child’s college graduation. The only way to do this is with relatively safe investments. (For more information on choosing the right risk level, see Personalizing Risk Tolerance.)
What You Can Get: Federal and Private Loans
Federal and private loans can bridge the gap between the money you have available and the full costs of your child’s college education. Start by determining your federal financial aid options the year before your child attends college. The Free Application for Federal Student Aid (FAFSA) is used to evaluate your child’s financial need based on your income level and assets. Colleges you select on your FAFSA will receive your income and asset information, and let you know what college or federal grants your child may qualify for, as well as the amount of federal loans your child is eligible to receive. You don’t have to accept these loans, but knowing your options will help you evaluate the feasibility of your child attending each particular school.
If federal loans aren’t enough, private lenders can also provide needed funds (Learn more about paying back multiple loans in Should You Consolidate Your Student Loans? ) Compare rates among multiple lenders. Because private loans generally have variable interest rates , ask the lender to discuss what your payments could escalate to if interest rates were to rise. You must be prepared to make the payment even if the rate changes. Also, ask both the high school guidance counselor and the college admission counselor for estimated salary ranges your child can expect after graduation to help you determine how much of that salary can contribute to paying off the loans.
Conclusion
When the economy lags, your child’s college wishes don’t have to fall with stock prices. Use all available resources to find free and borrowed money to supplement the money remaining in your 529 Plan. In the process, you’ll bond as a family. Your family’s united efforts may even end up saving you enough money to put towards your retirement or perhaps even a celebratory dinner for your new, soon-to-be graduate.
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