What do you do if the government's Expected Family Contribution is just too high or you can't manage the unmet need in your financial aid package? This page provides a few tips on finding the necessary resources.
See also FinAid's page concerning cutting college costs.
Your first step should be to talk to the financial aid office at the school. Ask for a professional judgment review and tell them about anything unusual about your family finances and anything that has changed since last year. Sometimes the school can make adjustments that will result in more financial aid.
Ask Relatives for Help
Asking relatives for money is never easy, but it is easier when you are asking for help with a worthwhile cause like your children's college education. Their grandparents may be interested in helping because your children are their legacy.
Relatives can pay the money directly to the college without incurring any gift taxes. (A payment for the education of a designated individual is not a charitable contribution and cannot be deducted on their income taxes.) Be sure to ask the school whether this will affect the student's need-based aid eligibility. If the school will be treating it as a payment on the student's account, it will generally have no impact on aid eligibility. But if the school treats it as a resource, it will reduce aid dollar-for-dollar.
There are other ways your relatives can help that will not have an impact on the student's financial aid package:
- If the grandparents set up a Section 529 College Savings Plan (or a prepaid tuition plan after July 1, 2006) where they are the account owners and the student is the beneficiary, it will not be reported on the FAFSA as an asset. Qualified tuition plans like these are only reported on the FAFSA when either the parents or the student are the account owners. (Some private colleges, however, will count all such plans as assets for awarding their own financial aid.) Distributions from qualified tuition plans are also not counted as income.
- If the grandparents pay the money to the parents, instead of the student, it will have no impact on aid eligibility. Gifts to the student are reported on Worksheet B of the FAFSA. Gifts to the parents of a dependent student, however, are not reported on the FAFSA due to a quirk in the definition of untaxed income and benefits. (Section 480(b)(7) of the Higher Education Act defines untaxed income and benefits as "cash support or any money paid on the student.s behalf, except, for dependent students, funds provided by the student.s parents". Since this definition is limited to money paid to or on behalf of the student, gifts to the student's parents are excluded.)
- A gift to the student after the student graduates will not affect need-based aid, so long as it is not a completed gift until after the student graduates. (Trust funds, on the other hand, are counted as a student asset and will severely impact aid eligibility.)
Borrow the Money
Education debt is good debt, in that it is an investment in the student's future. Just be careful to avoid borrowing more than you can afford to repay.
There are many options available for borrowing money to pay for your children's education. We are listing them in order from least to most expensive.
- The Perkins and subsidized Stafford loans have the lowest interest rates and the government pays the interest while the student is enrolled at least half time. But the loan limits are low, so this may not cover the full cost of education.
- If there is additional Stafford Loan eligibility, you can borrow it as an unsubsidized Stafford Loan.
- The PLUS loan is a parent loan that allows you to borrow up to the full cost of attendance, minus any aid received. But this is a parent obligation.
- Home equity loans and lines of credit may be an option for some families. They are available as either fixed rate loans or variable rate loans. Again, these are parent obligations.
- Private education loans have a variety of terms. They are generally based on credit with terms that are pegged to your credit score. These are student obligations, but often the parent must cosign the loan.
You can also make the federal education loans more affordable by consolidating them, which makes a variety of alternate repayment terms available. These include extended repayment, graduated repayment, and income contingent repayment. These can cut the size of the monthly payment significantly (by as much as half), at a cost of increasing the term of the loan and the total interest paid over the lifetime of the loan.
Reprinted with the permission of FinAid. © 2008 by FinAid Page, LLC. All rights reserved.