In a recent article, we talked about ways to find money to save for college, specifically through lifestyle changes such as living in a smaller house and driving a used car for 10 years or more. However, life happens. Maybe you didn’t have any extra money to save, or you thought you wanted your children to pay for college entirely themselves, but now that you have seen the sticker price, you are not so sure.
If you are coming to the college savings game late, there are still ways you can help your child pay for college.
1. Teach your children about college expenses before their junior year. Kids begin looking at colleges their junior year of high school. Before that happens, sit down with your child and speak honestly about what you are able to afford. Make sure your child understands the repercussions of paying back excessive student loans. With this knowledge, perhaps your child will decide to look at a cheaper college option such as a local community college or a local university or a state university to save on costs.
2. Let your child take out student loans and pay them off if you are able. Regardless of what school your child attends, she may have to still take out student loans. Go ahead and let her. Then, when she graduates, if you are financially able, you can help your child pay off the loans. Maybe you will pay the first 5 years of the loan while your child obtains a secure job and a good salary. Maybe you will pay off one loan entirely and leave another for your child. The choice is yours, but this option helps you wait a few more years to determine if you are financially able to help your child.
3. Raid your Roth IRA. If you choose this option, proceed with extreme caution as you don’t want to help your child at the expense of your own retirement. However, Roth IRA rules allow you to pull out the principal (the money you have deposited over the years, but not the interest you have earned) to pay for your child’s qualifying educational expenses without paying any penalties for withdrawing the money.
If you use this option, there are a few things to keep in mind–you can only put $5,000 a year (to be bumped up to $5,500 in 2013) in your Roth every year if you are under 50. You can’t add the money back in after you withdraw it, so you are minimizing the amount of tax free money you will have available in retirement.
Also, check with the college financial aid office to see how paying for your child’s education for one year will impact next year’s financial aid award. In some cases, you will be expected to pay more in subsequent years.
College tuition is not getting any cheaper, and as parents, we should do what we can to minimize the next generation’s college loan burden. That may mean helping our kids make smarter decisions about which colleges to attend and how much they can reasonably pay back in student loans as well as helping them pay for college if we are able.
If you started late saving for your child’s college education, what strategies did you use to help them?
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