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Many parents want to help their kids out with college, but it is often easier said than done. Many parents don’t qualify for much financial aid but can’t afford to pay the out-of-pocket costs. If this is also true for you, you could consider alternatives to paying for college. It is also best to avoid dipping into retirement savings for educational expenses. If you decide to pay for college, there are a few ways you can cover the cost of school for your kids.
Look into Private Loans
Even with student loans for your child, there may not be enough to cover all their educational expenses. So, consider looking into private student loans to make up the difference. You can get them in either your child’s name or your own. No matter which one you choose, you can use a student loan calculator to know roughly how much to budget for. You could take the loan out, or you could cosign on a loan for your child.
If you take it out yourself, you will be solely responsible for repayment, interest, and other fees. The lender will determine how much interest and the repayment terms. You could also cosign on your child’s loan. It means the child, not you, are the borrower, making them responsible for repayment. Still, if they are unable to do so, you will be responsible for that.
Using Your Home’s Equity
There are a few ways you can use your home equity to cover the cost of college. For example, you could take out a second mortgage or use a home equity line of credit. Depending on the way you use the equity, you will want to consider some benefits and drawbacks. For example, if you decide to refinance the mortgage later, you will have closing costs to pay. And if you do not pay back the funds, your home could be at risk. If the housing market drops, you don’t want the line of credit to be affected.
Using a 529 Plan
One way today’s parents are paying for student’s tuition is by setting up a 529 plan. It lets you contribute over time, and you can then take out the funds for college expenses without taxes or penalty. You can start investing funds early and choose from money markets, stocks, and bonds. By starting early, you can get the biggest return on your investment. For example, if you set aside $100 every month and receive about 6 percent returns, you could have around $38,000 once your child is ready for college. Of course, the exact plan can differ depending on the state, and the benefits and rules can vary a bit.
You can look up the state’s plan so you can start setting aside funds as soon as you can. If you have a financial advisor, they could also get the plan set up. You will need your personal information and bank account information to get started. Remember, some states might have a minimum as to how much you need to contribute to the plan each month, so do your research ahead of time. Even if you can and plan to cover the full expense of college for your child, it is important to talk to your kids about the cost of college so they understand what it takes and why it is important not to waste this gift.