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Control Costs Of College

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By DAVE CARPENTER

The Associated Press

Published: November 16, 2008

CHICAGO - A number almost as scary as 401 - as in 401(k) - for parents with college-bound children these days is 529.

The stock market swoon that has shrunk retirement savings by double digits this fall also has put a big dent in Section 529 savings plans, the state-sponsored programs for college costs that offer significant tax breaks, as well as other accounts earmarked for college savings.

The financial crisis makes it more incumbent on parents to make the college selection process a purchase decision that's akin to buying a car - or more precisely, a new car every year for four years - according to Tim Higgins, a certified college planning specialist and author of "Pay for College Without Sacrificing Your Retirement."

"Too many people are playing the admissions game as opposed to being smart consumers," Higgins said. "People who get wrapped up in the decal that's going to be on the back of their car are probably going to make a bad, emotional buying decision. They should be looking for a good education that fits the student at a reasonable cost that their family can afford."

Here are excerpts of his comments in an interview with The Associated Press:

What are some strategies that parents of college-bound students can pursue to limit their expenses?

There are two good options that people were less enthusiastic about years ago: looking at in-state public schools or at private schools that may be safety schools (fallback choices) for your student.

Whenever you're looking at state schools outside your own state, the costs almost double.

Wealthy private colleges where your student is going to be one of the better students coming in may be willing to give you merit-based money or be much more lenient in their need-based formulas to lure the students they want.

What's a cost-cutting option that's often overlooked?

One top strategy that people often don't think of as a financial strategy is SAT (or ACT) test prep. This is huge, because it not only helps you get into schools where the door wouldn't have been open but can bring thousands of dollars in merit-based aid.

It might cost you $200 for an online program, $500 or so for classroom prep or up to $2,000 or more for personal tutoring.

What's an appropriate amount of debt to take on?

One question I often get from parents is what is the right amount for the student to borrow. It depends on the family's finances and what field they're going to go into and how much they're going to be making. I like to cap the student borrowing at the (federal) Stafford loan rates, which works out to $27,000 over four years. Once you start getting up into the $40,000 range, the $60,000 range, that's a ton of pressure on the student to be able to make those payments.

For parents, I'd say do a financial plan. Maybe the answer as to how much they contribute is zero. And that's fine - that just makes them focus on different colleges, such as spending the first two years in community college.

Under what circumstances would you recommend tapping into home equity to pay for college?

If there's going to be parent borrowing, I often recommend looking at home equity first. A lot of things have changed - home equity has decreased because values have decreased, and it's tougher to get lines of credit. But still, it should be pursued because generally rates are more attractive. If you have to borrow, it makes the most sense to do so in the student's name and to use Stafford and (high-need federal) Perkins loans. Those are the best borrowing rates and the most flexible. For parents, it's out of your name.

Just remember to fill out the FAFSA (Free Application for Federal Student Aid) even if you suspect you won't qualify for need-based aid. You'll need to if you plan on borrowing a portion of college costs through the best loan programs available.

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