Wondering How to Pay for College?

So your kid is off to college and you're not one bit worried about those looming bills because you've been saving since he was in diapers.

Congratulations, you can stop reading now.

See also: Try our College Savings Calculator.

But if you're like the millions of befuddled parents and grandparents who are wondering just how you're going to come up with the big bucks, take heed. After all, paying for college is different today from what it was when boomers were campus-bound, says Myra Smith, executive director of financial aid services for The College Board.

Expenses have skyrocketed, and government aid is down. A four-year degree at a public university can easily cost $100,000. A private university can generate a bill twice that high.

So here are six strategies that can help you make smart decisions in the years ahead.

1. Preserve your nest egg. Don't divert future 401(k) or IRA contributions. "It's hard for parents to say to their kids, 'I'm going to pay for my own retirement before I pay for your education,'" says Mary Malgoire, a certified financial planner at The Family Firm, a fee-only personal adviser in Bethesda, Md. But with savings having taken such a hit in recent years, "we are more concerned with parents being able to retire. It's either that or you're looking at being a burden to your child later on."

Instead, think of ways to modify your lifestyle, or sell assets — artwork, a car, jewelry or something else that you may not need — so that you can contribute without undermining your future.

2. Look for scholarships. The financial aid office at your child's college can recommend scholarships that your student might be eligible for. You'll probably want to do a more thorough search yourself at such websites as FinAid.org, Fastweb and the Collegeboard.

Some scholarships are awarded based on academic achievement, others are based on who the student is. For instance, some go to kids of certain ethnic or religious backgrounds, some to kids whose parents are in the U.S. military, some to kids who plan to study in a particular field. There are many scholarships out there; be sure you're aware of every one for which your child might qualify.

3. Borrow. First, a few statistics. College tuition has risen faster than the rate of inflation for two decades, and today over two-thirds of students borrow to pay for higher education. The average student loan debt for college graduates is $26,000; 10 percent owe more than $54,000.

Financial planners say educational loans should only be enough to close a funding gap and no more.

But should it be parents or kids who apply? That's a personal decision only families can make. But you should talk it out in detail to devise the best strategy. And think long and hard before cosigning a loan with your child to lower the interest rate. It may seem like simple parental duty, but you could get stuck with the monthly payment on a debt that may remain on your shoulders even if you file for bankruptcy.

If the student borrows in his or her own name, federal government-sponsored financial aid will be the best deal. Applications can be filed online.

Photo by Gary S Chapman/Getty Images

College expenses have skyrocketed, and government aid is down.

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. Simpletuition.com 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 AARP.org.

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