Parents who are seeking out ways that they may help their student pay for college have a variety of options that may range from parent loans to savings programs, but there are also some alternative tuition payment strategies that parents have implemented as a way to help their child meet college costs that are on the rise. However, parents are being urged to explore a variety of opportunities that may be available at the present time as there are some payment options that parents have been using which some financial advisers say are a bad idea.
One of the best ways that parents can help pay for college is by saving through either simply putting funding aside throughout the life of a child or opening a 529 college savings plan. This option can allow parents to put money aside and save for college, no matter if a student may want to attend an expensive university or a more affordable educational institution, as these plans can be structured in such a way that parents can help their student meet the majority of or all of the costs associated with their education.
While there are also options like prepaid tuition programs, some parents have started looking at loans that may be available to help them pay for tuition and fees, but this is where some parents and officials are often divided on how they should help to pay for college. There are some instances where students may be able to borrow federal loans or private loans on their own, but parents often want to help their students and will take out a loan through federal parent loan or private opportunity so that they can meet these college tuition costs without their student having to borrow. Yet, what some parents may overlook is that the cost of a parent loan could come at a higher rate than a federal student loan, and if parents are determined to help their students through college, some have opted to let their son or daughter borrow federal loans, save during their student’s college career, and begun helping them repay this federal student loan debt rather than getting a parent loan which may come at a high rate and overall cost.
There are also some parents who are accessing their home’s equity or even taking money out of their retirement accounts to help meet college costs, as it’s understandable that students are struggling currently due to higher tuition costs across the nation. However this is where many financial advisers often stress parents need to make sure they have their best interests in mind rather than their student’s interests, as taking money away from a retirement savings plan can be greatly detrimental down the road, particularly when a sizable amount is used to meet college costs and potential fees are factored into the equation for withdrawing funds from my retirement plan early, as an example. Also, if a parent borrows money against their home to help pay for college and they are unable to meet this obligation, they have now put themselves in a situation where they could potentially lose their home as a result.
Understandably, the way that a parent helps their child will be an individual decision that only they can make but when it comes to exploring the options available, many financial counselors want parents to heavily research grant and scholarship options that may be available for their son or daughter, as these free financial resources will obviously be the best bet for anyone needing help paying for college. If it’s too late to make a contribution to a 529 savings plan or prepaid tuition plan, parents who have a student that happens to be in a position where loans may be necessary have been better off in some cases by letting the student borrow loans and then planning to help them repay this debt after graduation, as again federal student loans can be more affordable, in terms of interest rate payments, than federal parent or private loans.