Paying For College: Identifying How Parents Can Contribute

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If you know approximately how much money you need in order to send your children through college, you may be suffering from sticker shock right about now. You may even be reading this while puffing into a paper bag, thinking that you'll never save enough money. And you won't, at least not until you pull your head out of your bag and begin to plan how to fund those future college expenses.

While you take a minute to catch your breath, let me ease your mind a bit — you may not be the only resource for your children's education. In this article, I introduce a variety of resources you can check out when putting your college savings plan together. You may find that you have more alternatives than you thought, but you may also see that you have some work to do. In either case, read through this article carefully, take note of the different resources, and discover which approach works best for your family and your situation.

If you feel that you may only be able to save a portion of your child's future college costs, and know that you'll be tapping into need-based financial aid programs down the road, be careful of how and where you save that money. Don't contribute your savings to any account that's owned by your child, such as an UGMA, UTMA, or a Coverdell Education Savings Account; 20 percent of the value of these accounts will be included as part of your expected family contribution under the U.S. Department of Education formula, whereas only 5.64 percent of your assets will be counted.

No matter how independent your child claims to be and no matter how colleges claim to promote and nurture that independence, the bleak reality remains: the school sends the tuition bill directly to your house for you to pay, and trust me, your child is more than willing to let you pay for it, too.

The financial aid system concerns itself primarily with the parents' ability to pay for college tuition and, like the financial aid system, colleges look to your deep pockets when the tuition bills come out because, frankly, they want to get paid. You see, colleges count on two things — that you've been saving for your child's education and that, considering you're well into your prime earning years, you make more money than your child (unless you have a little tyke who is a sitcom darling on national television). In order to live up to those financial expectations, I give you some tips below to evaluate your assets and use your current income for your child's college tuition.

Accessing Additional Assets

Hopefully, you've been planning for the day your child heads off to school, and hopefully, you've been stashing away every possible penny in traditional savings or brokerage accounts, trust accounts, the new college savings plans, or some combination of those savings vehicles. Be on the lookout for the following savings opportunities that you may have overlooked, especially if you find your traditional savings falls short:

• Collectibles: You may be surprised to find yourself with the cost of a college education forgotten amidst the spider webs in a closet or attic. I collected stamps as a kid. My brother, on the other hand, had a comic book collection that couldn't be beat. Others in my family have boxes of original Beatles memorabilia. These collections have the potential to turn into a small fortune. So check out those remnants of your childhood — they may be very rare and valuable.
• Life insurance policies: If you own life insurance (other than term), you may have a significant amount of cash value in that policy — cash that you can access by taking a loan against the value of the policy or by terminating the policy. Many folks purchase these policies to make sure their children are cared for through college in the event of a tragedy. Because you're still alive and kicking, what better use for the money now than to help pay for those very same college costs?
• Scholarships from your employer: Many larger employers offer scholarship opportunities to their employees' children. These scholarships are almost always merit-based (your children need to maintain their grades), and they're almost never enough to pay the full amount. Still, some scholarship aid is better than nothing, and you don't have to pay back this aid.
• Cash value in your home: After focusing month in and month out on making sure the mortgage, taxes, insurance, and utilities are paid on your house, you may be astounded by the amount of value that's just sitting there in your house.

If you've been unable to save enough for your child's education, and the sale of your coin collection won't completely fill the gap, think carefully about how to apportion your savings. Split your savings equally between the number of years you'll be paying tuition bills — if you feel you'll be able to make up the balance each year with current earnings. On the other hand, if you feel that you'll have no choice but to borrow money in order to pay the balance, first spend down your child's savings, and then your own, as quickly as possible, postponing taking loans as long as you can. By reducing the amount of your family's assets, you'll increase the amount of need-based aid that your child may be eligible for.