What to do if you don't have cash for college

PERSONAL FINANCE

August 13, 2006|By EILEEN AMBROSE | EILEEN AMBROSE,SUN COLUMNIST

Maybe you procrastinated. Maybe a family emergency derailed your finances. But your child's college tuition bill is due any day now, and you don't have the cash.

It can be a lot of money. If your child is attending a top-tier university, the bill could be about $20,000 for tuition, fees and room and board. And that's just for the fall semester.

Schools say it's not unusual to hear from families that they can't pay.

"It happens all the time," said Jim Belvin, director of financial aid at Duke University.

How schools handle these last-minute cases differ. Some are willing to give parents a little leeway; others are hard-line about deadlines.

At worst, a student might arrive on campus and not be able to register or move into the residence hall until the bill is paid.

Though it's late in the game, families have options. Schools can adjust a financial aid package when a hardship occurs, such as a parent's death or job loss. For other cases, aid officers can outline financing tools -- from loans to tuition installment plans -- and will know of any resources unique to that school.

But parents must move fast and contact the school.

"The sooner they let us know, the more options we are going to be able to offer them and the more help we will be able to give them in settling this balance," said Mark Lindenmeyer, director of financial aid at Loyola College in Maryland. "Any college or university would agree with that."

With the clock ticking, here are moves to consider:

Monthly payment plan. This is the first option to consider and one that avoids borrowing. Many schools offer tuition payment plans, where the college costs are often spread out over 10 months. Payments are interest-free, but plans typically charge an annual fee of $50 to $75.

Most monthly payment plans start in June, but families can still sign up, Lindenmeyer said. But latecomers will have to catch up on payments missed so far, which can be a sizable chunk of money.

Parent loan. When cash and time are short, parents' next best option may be the federal Parent Loan for Undergraduate Students, aid directors said. A PLUS loan covers the cost of college -- tuition, fees, books and living expenses -- minus any financial aid.

Provided parents have a good credit history, their application can be approved in as little as one day and the funds can be disbursed within a week, experts said.

Loans must begin to be repaid two months after final disbursement for the academic year. For many parents, that means repayment begins in early spring.

A PLUS loan can be made directly from the government or through private lenders, depending on the school. The fixed rate on the PLUS loan is 8.5 percent. Due to a quirk in the law, the rate is 7.9 percent at schools in the government's direct lending program, experts said.

Some private lenders offer discounts that put the rate below 7.9 percent, said Mark Kantrowitz, author of FastWeb College Gold. New York lender MyRichUncle cuts the PLUS loan rate to 6.75 percent during repayment, said Kantrowitz, an adviser to the lender.

Student loan. Applying for federal student aid takes more time. If you haven't done so, fill out the Free Application for Federal Student Aid. Fill it out online to save time.

Financial aid offices could know what aid a student is eligible for in five to 10 days after the FAFSA is submitted, depending on the school, experts said.

Students may be eligible for a subsidized Stafford loan if they meet a needs test. With a subsidized loan, the government pays the interest on the loan while the student is in school.

Even if family income and assets are too high, students can take out an unsubsidized Stafford loan. Students pay the interest while in school or can have it added to the loan's principal.

Currently, Stafford borrowing limits are $2,625 for freshmen, $3,500 for sophomores, $5,500 for juniors and seniors. Students begin repaying loans six months after graduation.

The interest rate is fixed at 6.8 percent, although lenders often give discounts when the loans are being repaid. For example, MyRichUncle will lop off 1 percentage point on the interest rate once repayment begins. Others cut the interest rate after borrowers make three or so years of on-time payments.

Private loans. Many private lenders are willing to give loans for college. Schools often keep a list of them, although families can shop around for the best deal.

Lindenmeyer said this option isn't one that parents should rush into because they need to take time to compare terms among lenders.

"You need to be a good consumer when considering financial alternatives. You have to compare terms and interest, fees and pay-back features when making a decision to borrow," he said.

Home equity. Some families may look at the equity in their homes as ready money. Here, too, Lindenmeyer advises parents to take time to weigh lenders' offerings.

With a home-equity loan, families borrow a lump sum, usually at a fixed rate, and generally repay it over five to 20 years. The rates for borrowers with good credit records in the Baltimore area are 7 percent to 8.5 percent, said Neil Harrington, with M&T Bank.

With a home-equity line of credit, parents can write checks to pay tuition, repay the debt and borrow again when necessary. They only pay interest when the credit line is tapped. The rate is usually variable so borrowing costs can fluctuate monthly, Harrington said. The rates in Baltimore now range from 8 percent to 8.5 percent, he said.

Scholarships. Most scholarships already have been handed out, but it can't hurt to see if there's still some unclaimed money available from foundations or other organizations. Check online at www.FastWeb.com, a scholarship search site. It's not a quick solution to a tuition shortfall, but it should give you a jump on next year.

eileen.ambrose@baltsun.com

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