When your teenager is counting down the days until leaving for college and making new friends, the last thing you want to be doing is casting about for more tuition money.
But that’s exactly what many parents are doing right now to cover either a small hole or a crater.
The good news: There are plenty of options if you need to borrow before the coming fall semester. But they come with pros and cons, so choose carefully.
First, contact the school’s financial aid office and ask for a review of your award. The college needs to know about any recent changes in your financial situation, such as a job loss, that might justify a bump up in money. These appeals also can be made at any point during the school year.
In addition, most schools allow parents to sign up for tuition installment plans. The programs generally allow families to divide their payments over the course of the semester or entire academic year. Most installment plans come with an upfront fee of about $100, but the deadline at many schools for signing up is fast approaching.
Here are other options:
Tap into social media: Crowdfunding websites such as GoFundMe and YouCaring are becoming more popular strategies for raising money for school. The broader your network of family and friends, the better your chances for success.
In creating your campaign, provide enough information about yourself to entice supporters to want to donate. Create a manageable fundraising goal, and tell donors how their money will be used.
Watch for fees charged once the campaign goal has been reached, along with fees for payment processing.
Take out a parent PLUS loan: These federal loans are currently set at a rate of 7 percent. They are relatively easy for parents to qualify for, financial experts say, although to apply you should fill out the Free Application for Federal Student Aid, or FAFSA.
PLUS loans allow you to borrow up to the cost of attendance and defer repayment while your student is in school. The loans do carry an origination fee.
On the other hand, parents with very good or excellent credit may be able to get better terms on a private loan through their bank.
Use your home equity: A home equity line of credit or a home equity loan is secured by your home. That puts your home at risk if you can’t pay off the loan.
With a home equity loan, borrowers get a lump sum and most lenders charge a fixed rate. A home equity line of credit allows you to borrow the money as you need it, and rates are often variable.
According to Bankrate.com the average home equity loan rate is 5.27 percent, and the average home equity line of credit rate is 5.5 percent.
Borrow from your 401(k): If your company allows, you can borrow as much as $50,000, or half the account balance, whichever is less, from your retirement nest egg. Typically 401(k) loans must be repaid with interest in five years (and within 60 days of a job loss).
The upside is that you are repaying yourself. However, keep in mind that by borrowing, you are also jeopardizing some of the earnings power on your retirement funds.
Draw on your IRA: Both Roth and traditional IRAs allow account holders to withdraw funds to pay for major college expenses. But if you do tap your retirement account, financial planners generally recommend using a Roth because it offers more advantages than a traditional IRA.
Keep in mind that you do pay tax on the Roth earnings (unless you’re 59 1/2 or older and have had the account for at least five years), but you don’t get hit with the 10 percent early withdrawal penalty if the money is used for school.
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