Make Up for College Savings Shortfalls

If your savings failed to keep pace with the cost of your child's college dreams--or you forgot to save at all--it's not a reason to tear up those college applications.

Even if your child is a teenager planning to start college soon, you still have options for funding a college education.

Expect costs to rise

Parents who lacked the means or opportunity to save aren't the only ones scrambling to pay for college. Even parents who started saving while they still were paying for diapers and baby food sometimes lack the funds needed to cover college costs. Those costs outpaced inflation over the past 10 years, according to the College Board in New York, a nonprofit association of colleges and universities.

Including room and board plus other expenses, the College Board puts the average annual cost of attending a private college at $31,916 for 2005-2006, while a public university costs $15,566.

Those figures can be shocking to parents who thought college would be more affordable, says Linda Hoover, senior vice president of lending at Educators Credit Union, Racine, Wis.

"A lot of parents were under the assumption that they would not have to be responsible for so much of the cost on their own," Hoover says, "and even parents who did plan ahead to save for education didn't expect the cost to be so astronomical."

Start saving now

Funding for college costs may come from savings, contributions from the parents' current budget, student contributions from savings and current earnings, and financial aid.

Even if you have only months until your student heads to school, it's worthwhile to start saving now. Every dollar that you or the student deposits will provide a cushion for later expenditures.

If you have several years or more to build savings, check into savings programs designed to help fund education. Programs such as 529 savings plans and Coverdell Education Savings Accounts can offer significant tax benefits. Some states allow students to prepay the cost of public university tuition, which helps protect against rising prices.

When time is short, consider keeping savings accounts in your name, since savings accounts in the student's name have a greater impact on financial aid. The aid formula assumes students will contribute 35% of assets such as savings to educational costs each year, while the parents' contribution is calculated at 5.64% of assets.

Finally, remember that you'll be able to reallocate some costs within your current budget. You can apply money now spent on high-school fees, activities, senior photos, and other expenses toward college expenses once your student clears high school. That can be especially helpful when parents opt to pay tuition on the installment plan.

Look beyond savings

Financial aid, including loans that students or parents must repay, is another source of education funding. College Board figures show that roughly two-thirds of students receive aid in the form of grants, loans, or both.

"Most people cannot afford to pay for the full cost of higher education," says Nancy Morgan, product manager for the Credit Union Student Loan Network operated by CUNA Mutual Group, Madison, Wis.

Figuring out how much parents will be asked to contribute begins with the Free Application for Federal Student Aid (FAFSA), which the parents and student complete together as long as the student is listed as a dependent on the parent's tax form. Many colleges and universities set FAFSA filing deadlines that fall six to seven months before the fall semester begins.

The FAFSA tells the parents and student what type of aid they can expect to receive and what their options are for accessing loan programs. Morgan also recommends that parents access the Mapping Your Future Web site, which explains funding options, including federal PLUS loans designed to cover the difference between aid packages and student needs.

Be a smart borrower

Loans often are an essential part of college funding, filling the gap between what parents saved and what they're expected to contribute to college costs. Student loans even can rescue parents and students who fail to address paying for college until weeks or even days before the semester starts, with some credit unions approving loans in less than 24 hours.

When parents fail to qualify for PLUS loans or other federal loan programs, Morgan says there are alternatives. She notes that borrowing from a home equity line of credit usually is tax-deductible for parents; home equity loans typically carry a higher interest rate than federal education loans.

Morgan warns against borrowing from a 401(k) plan: You must repay those loans immediately if the parent leaves a job, and they may cost more than education loans that combine low interest rates with tax deductions.

She also cautions parents that many programs charging a fee to search for financial aid money are scams. Instead, she recommends using the FAFSA and then shopping around to find a credit union lender offering competitive interest rates and fees.

Enlist your student

Experts also advise parents to enlist the student in the quest to cover college costs.

CoVantage Credit Union in Antigo, Wis., recommends that students and parents start planning during the junior year of high school, if possible. CoVantage offers "Funding Your College Education" seminars aimed at high school juniors and their parents.

"It's important to get out there and apply for lots of scholarships," says Regina Prey, student loan specialist. "That's their best bet. A lot of folks feel they're going to be eligible for more financial aid, and in fact it doesn't turn out that way."

Prey says scholarship eligibility often depends on good grades, so she recommends that parents and students monitor academic performance. She also encourages them to search for scholarships aimed at special needs, skills, or interests.

By planning ahead, students can take advanced placement and foreign language courses that can enable them to "test out" of college courses. While students still pay for the college credits, they may be able to shorten the time required to graduate by a semester or even a year, thus reducing their total college bill.

Another option that can lower costs is studying at a community college for a year or two. Community colleges charged tuition and fees of $2,191 a year in 2005-2006, compared with $5,491 at a four-year public university, according to the College Board.

Work it out

Some students qualify for work-study jobs at college campuses as part of their financial aid package. When work-study isn't an option, students can apply for other part-time jobs. Some colleges maintain lists of jobs located near campus, including some positions that help students prepare for post-college careers.

Students also can continue to apply for scholarships in college, taking advantage of specialized grants for students pursuing a specific course of study.

While paying for college can appear difficult, credit union student loan experts emphasize that students and parents can create a funding package that works for them. As long as students and parents continue to save, work, and seek out other funding sources, a college education still will be within their reach.

Published September 18, 2006