College Financing

Today’s job market is more competitive than ever, and
a college degree is something your child should not be without. Financing the
costs of that college degree, however, is becoming increasingly difficult.

While most financial advisors estimate an annual inflation rate of
about 4 percent, college tuition costs are rising at double that
rate and three times the rate of increase in the average family’s
income, according to MoneyWorld, a financial monthly.

If current trends continue, the first year of college for a child
born today will cost about $50,000 at a moderately priced private
college, compared to $20,000 now.

What’s a parent to do?

You should start saving for college the day your child is born,
unless you are affluent enough to write checks out of current
income when the bills start rolling in.

Beginning early is important because procrastination can cost
money. The longer you wait to start saving, the more you’ll have
to set aside each month to achieve a specific goal.

For example, you can build a $100,000 nest egg in 15 years by
investing $289 a month in an account earning 8 percent interest.
But if you reduce your saving period to 10 years, you will have to
invest $547 a month to yield the same amount.

You can take the highest risk possible, such as investing in the
stock market, for a 1-year-old; but if you don’t start saving
until your child is 15, you can’t afford to make risky,
high-return investments because of the possible loss of principal.

If your child starts college this fall your options are limited.

The question then is whether you should take out a home-equity
loan or a government-sponsored student loan. But not all financing
is equal, as interest rates and fees vary. Often there are
family-income limits or maximum amounts that can be borrowed. And
payback periods can be as short as five years or as long as 30.

At this late date, the student may have to consider working his or
her way through college, and some institutions even offer such
“work” scholarships.

If your child will attend college in two to three years, the two
of you should work together.

He or she should apply to at least three colleges and no more than
seven or eight. Any fewer and the student may lack choices later;
any more, and the application process could become too cumbersome
to handle and those application fees will mount up.

Your first step in finding financial aid is filling out the
“Free Application for Federal Student Aid,” which can be
obtained from your high school guidance counselor, by writing the
financial aid office at your school of choice, or by calling
toll-free (800) 4-FED AID.

In determining financial aid, colleges usually look at the
parents’ income, family size, and number of members currently in
college. Students’ taxable and non-taxable income is also
considered, while home or farm equity usually is not factored in.

College Finance Resources

There are plenty of books and Web sites covering how to get
financial aid.

Among books: The Scholarship Book by Daniel J. Cassidy and
Michael Alves (Prentice Hall Inc.); College Financial Aid,
by the College Research Group of Concord, MA, and John Schwartz
(Arco Publishing); and Student Guide to Financial Aid, U.S.
Department of Education, (800) 433-3243.

Among Web sites, www.finaid.org
and www.fastweb.com are good
starting points.

Another worthwhile source is Sallie Mae, the nation’s largest
source of funding for education loans, at (800) 891-4599.