The stories are endless. Joe and Sally saved their entire lives for their kid’s college education, but the recent market downturn has cut their college savings fund in half. Now they are desperately searching for ways to fund college. Often times this report is followed up by a tearful high school senior explaining their dream of attending an Ivy League school has been crushed.
I’m a father of two kids, and I know how it feels to want to give your kids everything. But I honestly think parents are unnecessarily beating themselves up over these college fund balances. Parents and college-bound kids are going to have to make some tough choices between now and next fall, and the toughest of those choices will be dealing with the financial reality that a large portion of their college funds are gone.
These days most families turn to student loans, particularly those who lost half the value of college savings in a matter of months. Their story is a cautionary tale for those invested in risky investments too close to a financial goal, but since they all recognize that now there is no sense beating them over the head with portfolio allocation instructions. No, we are where we are, and we have to figure out where to go from here. Because I generally dislike student loans, the following tips will intentionally leave Sallie Mae out of the mix.
Photo courtesy of StuSeeger
Seven Ways To Fund College Without A College Fund
1. Reconsider your choice of school. I sound like the guy who doesn’t read his own articles. I made the mistake of getting hung up on an out-of-state school because my best friend was going there, and I liked the football team, and it was my favorite college town. Big mistake. While I do have the ultimate souvenir from those days away at college (my wife), I also came home after 2 1/2 years with a pile of student loans and credit card debt. After enrolling in a local university it was obvious the quality of education was just as good, and the tuition was considerably less. Lesson learned.
2. Ask for help from friends and family. One of the more interesting concepts I have seen lately to formalize this process is a type of social investing market lead by Freshman Fund. Students and parents tie the child’s Freshman Fund account to existing 529 college savings plans, and then share the student’s profile with family and friends. Contributions are collected and deposited directly into the 529 plan behind the scenes (no need to share account numbers, etc. with extended family).
3. Apply for every scholarship under the sun. I mean that quite literally. If I were a high school junior facing rising tuition costs and a small balance in my college savings fund I would make it my part time job to apply for as many scholarships as possible. I would enter writing competitions, join various associations, and basically spend every free moment researching scholarship opportunities. Even if you applied for 1,000 scholarships and 990 of them turned you down, there is a chance those remaining 10 could finance a year of school (or at least offset some of the costs of that first year).
4. Get a part time job. This one is a little controversial because some argue that part time work detracts from the college experience, or leads to lower grades. I started working my freshman year to cover books and miscellaneous expenses, and later worked even more hours to pay for an apartment and utilities. Admittedly, it was a drain, but I appreciated things far more than if my mom paid for everything. I think it helps kids to have at least a little financial skin in the game.
5. Work full time for tuition reimbursement. Many companies offer tuition reimbursement plans to their employees. Start by researching companies in the field you are ultimately interested in studying. Most company websites offer a list of perks included in their benefits package, and if you have questions about tuition reimbursement eligibility contact the company’s human resources office (or recruiter) usually listed on the job search page.
6. Live at home and stay local, or commute a short distance. Room and board can add significant costs to already inflated tuition costs. If you are short on cash you might be able to pull off tuition-only and stay and stay on the “Mom and Dad” meal plan. As a compromise, at least consider living at home your first year or two and then look for a reasonable off-campus option for the final years at school.
7. Take a year off to save up the cash. Again, not a popular option for most high school seniors eager to get started on college life. But families need to be realistic; if the money isn’t there it just isn’t there. And with many people being laid off, or at least fearing they may be laid off, most parents are reluctant to try to cash flow tuition at an expensive school. It might make sense to take a year off, work full time while living and home, and save every single dime you earn towards the next year’s tuition.
I wish I had chosen this route – in fact, I ultimately did. I went to school right away for a couple years, returned home and worked for a couple years, and then wound up working my way through my remaining time at school. Looking back, I could have done things even smarter by starting a Roth IRA when I was a teenager to save for college. That’s right, you can use a Roth IRA for college because contributions may be withdrawn at any time, and earnings may be withdrawn penalty free for qualifying higher education expenses.
Again, I want to stress to those parents and students out there who might be reading this that it is not healthy to play the blame game. Many parents are mad at themselves for not rolling funds into cash last year, and many students are equally mad at parents for losing so much of their college fund. Being mad at yourself, or resentful towards your parents accomplishes nothing. Now is the time to pull together as a family and work to find a solution that works best for everyone involved.
High school seniors, resist the temptation to take out huge student loans. I know the money is there, and you don’t have to pay it back for a few years, but you will have to pay it back. When you graduate college you will be filled with the excitement of getting started in your career, and finding your first home. Don’t spoil it by tying a noose around your neck and hanging four years of student loans from it. Those loans will limit your options, and are often the gateway to other forms of debt such as credit cards and car loans. Make the sacrifices now so you don’t have to make them later. I promise, ten years from now you won’t regret it.
