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Wondering How to Pay for College?

6 ways to come from behind and finance your child’s education

Are You Ready to Pay for College: Ten tips for Boomers

College expenses have skyrocketed, and government aid is down. — Photo by Gary S Chapman/Getty Images

The maximum amount that an undergraduate can borrow is $5,500 for the first year, $6,500 for the second year, and $7,500 for the third and fourth years. Payments can be put off until after graduation, though interest will continue to accumulate in the meantime. Interest-only payments can be made right away, a wise strategy if it's financially feasible.

If these loans don't cover the college bills, parents may consider applying for government-backed Direct PLUS loans. They're the most common parent loans, but they're not exactly cheap. If the 4 percent origination fee doesn't make you see red, the 7.9 percent fixed interest rate just might. Still, that rate may be lower than private bank loans.

Students and parents can also apply for private educational loans, but rates and terms vary considerably, so make sure to do your homework. Some loans give students the option of deferring repayment until after graduation or making interest-only payments during school. Rates can be variable or fixed. offers a loan comparison tool listing banks that offer private student loans, along with rates and terms.

Finally, consider lending money to the student yourself, or asking a grandparent or other relative to do so. Priced at, say, 5 percent interest, the student — and lender — would be getting a far better rate than what banks are offering. Of course, lend wisely and spell it all out in writing. Let there be no ambiguity about when the money's due back.

4. Send the kid to community college for two years, then to a four-year school. Your kid will get a degree from the four-year school, but without a big chunk of the costs. Don't look down on community colleges — often they do as good a job of educating as universities.

5. Have your kid try to nab a job at the university in return for a break on tuition or to earn money and borrow less. If your child's an achiever, see whether the college lets a degree be earned in three years rather than four.

6. Tap all available tax breaks for parents. The American Opportunity Tax Credit can be claimed for tuition and course materials up to $2,500 on the first $4,000 of educational expenses. The credit applies to all four years of undergraduate education but is limited to those with incomes of $90,000 or less for single tax filers and $180,000 or less for joint filers.

You may qualify to write off up to $2,500 in student loan interest that you pay if your adjusted gross income is no more than $75,000 for unmarried tax filers or $155,000 for joint filers. While you won't get these tax breaks in time to help finance your child's first year, you can leverage them to help you with the second and subsequent years' tuition bills.

Carole Fleck is a senior editor at

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