Loand to get your kids throught college

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GETTING THE KIDS THROUGH COLLEGE

We always promised our children that if they studied hard, they could go to college wherever they wanted. We were going to take out a home equity loan to help pay tuition, but housing prices have declined to the point that our equity is pretty much gone.

To make matters worse, my husband just lost his job. We’ve got one in college. I’m afraid we can’t afford to keep our promise. Tuition is so expensive. Don’t colleges know there’s a recession?

It has never been easy to get children through college, but for many parents, it’s getting even harder for a number of reasons.

• Tuition costs have consistently outpaced inflation for several decades, but in more prosperous times, most parents could expect their income at least to keep pace with inflation.

During a recession, costs will continue to rise, and college costs will defi nitely continue to rise even faster, but parents can no longer assume that their income will keep pace.

• Although tuition costs are always too steep for most parents, when the economy is in good shape, government agencies, private organiza tions, and lenders are ready to help out. The schools themselves have more money to distribute and fewer students who need it.

Now, however, federal and state cutbacks have reduced the amount and availability of financial aid. Private aid programs are flooded with applicants, and colleges and universities need more and more of their available funds to meet the needs of enrolled students, decreasing the amount available to new applicants.

• The crisis in the financial markets is also affecting education lenders. While federal loans will continue to be secure, the private lenders are having problems. While the recession will not affect existing loans, future loans are likely to require more stringent approval terms and bear higher interest rates.

That’s the bad news. The good news is that the colleges are recognizing that students and their families may be going through some tough financial times. In fact, many colleges are contacting the families of all enrolled students and offering them a range of assistance to make sure that they don’t have to drop out for financial reasons.

WHAT TO DO IF YOUR SITUATIONWORSENS

Colleges and universities abide by the government’s assessment of your financial situation as indicated on the Free Application for Federal Student Aid (FAFSA) form. This assess ment is based primarily on your tax return and other information you give about your financial situa tion over the last year. However, in difficult times, it isn’t uncommon for a parent’s situation to worsen suddenly and render the agreed-upon level of aid inade quate or the agreed-upon parental contribution unattainable.

Many families count on borrowing against their home or selling investments to meet college costs in a crunch if their circumstances are temporarily impaired. How ever, turmoil in the economy may foil their good intentions for three reasons.

1. The real estate market has worsened throughout the country, and investment values have declined so much that many parents’ assets aren’t worth what they once were.

2. Many parents’ circumstances have changed to such an extent that they can’t qualify for a loan.

3. Parents who were willing to refinance their houses in an emergency are now confronted with severely depressed values and tighter lending standards.

If your financial situation deteriorates, and you’ve got a kid (or, like me, kids) in college, by all means reapply for financial aid. That means filling out another FAFSA form. While a decline in the value of your home will probably not improve your chances of obtaining financial aid, a big decline in your investments could, perversely, work to your advantage. Also, a loss or reduction in job income will be taken into consideration.

Armed with this information, ask for a review by the college’s financial aid office.

Financial aid offices are already facing a large number of such crises. Many of them report a doubling of financial aid requests over the prior year. They assure me that although times are tough, there is assistance available to parents facing difficult financial situations. Clearly, this is a bit of good news for students whose parents have been hit particularly hard.

Here are some alternatives that may be available to help you make up for any unexpected shortfall in meeting college costs:

• A variety of loan programs are available, including Perkins loans, Stafford student loans, and PLUS loans. • Most colleges offer emergency loans to students. While these loans may be modest, typically $1,000 or less, they can provide some immediate assistance.

• Colleges will usually revisit financial aid in the middle of a school year if there has been a change in the family’s financial status, particularly if a breadwinner has become unemployed.

• While tapping into retirement accounts to pay college costs should be considered only under the most exigent circumstances, money withdrawn by parents who are under age 591⁄2 to pay college costs will usually escape the onerous 10 percent penalty assessed on money taken out before age 591⁄2, although income taxes will be due.

The Strategy

Students should use small supplemental loans offered by the college as a stopgap measure and reapply for financial aid as soon

as they can, as they will presumably qualify for more aid. Financial aid offices nationwide stand ready to help you through your tough times. You should consult with them as quickly, honestly, and specifically as you can. They are on your side.

ADVICE FOR THE COLLEGE BOUND

The slumping economy will require parents and students to plan more carefully on ways to meet college costs. Here are some suggestions to close the gap between college costs and family resources.

• Don’t delay. Begin planning early.

• Consider lower-cost state schools and private colleges with strong financial aid packages. Some students opt to attend a community college for two years before going to a more expensive four-year college.

• Don’t automatically assume that you won’t qualify for financial aid. There is no downside to completing the FAFSA forms, and you may be pleasantly surprised. Also, the key to getting more financial aid is often simply asking for it.

• Research scholarships. Some resourceful families cobble together several small scholarships that amount to a few thousand dollars each year.

• Speak to college financial aid officers in advance of making a decision. If they really want the student to attend, the college may be able to sweeten the package.