Many parents are faced with the reality of having to come up with a significant amount of money to cover the costs of their child’s college education, even after factoring in financial aid. The average cost of attending a private four-year college in 2023 was $60,420, leaving students and their parents to cover an average of nearly $35,000 out of pocket. For parents who do not have substantial college savings, this can be a daunting challenge.
One option for students to help cover costs is to take out federal Stafford loans, which offer a favorable interest rate and do not require repayment until after graduation. While taking on debt may not be ideal, it can be a useful financing tool for students. Parents can also consider private student loans or federal Direct PLUS loans, but each option comes with its own set of risks and drawbacks, including potentially high interest rates and fees.
When considering borrowing options to cover college costs, it is important to weigh the risks and benefits of each. While some parents may be tempted to dip into their retirement savings or use credit cards to cover expenses, these are generally not advisable due to potential long-term consequences. Instead, parents may consider an interest-only home equity line of credit as a short-term cash flow solution.
In addition to borrowing options, parents can consider redirecting current spending and savings to help bridge the funding gap for college costs. This may involve evaluating current expenses related to having a teenager at home and redirecting discretionary income to savings. Temporarily pausing or reducing retirement contributions can also free up additional funds to cover college costs in the short term, but should be done cautiously to ensure financial stability.
Planning for college expenses should ideally begin well before a child reaches college age, with families discussing affordability and realistic expectations for college choices. By evaluating different colleges’ costs and considering the value of higher-priced schools versus more affordable options, families can make more informed decisions about how to fund their child’s education. Additionally, exploring state tuition aid programs and subsidized loan options can provide additional resources for covering college costs.
