Money for College

annikasorrensen
Wed, 06 Aug 2008 16:58:33 +0000

This might be unpopular on a list like CC, where the seeming goal for many parents is to send their children to an elite LAC…

1) Unless you have massive amounts of equity in your home - don’t refi your home. In this market, that goes even moreso. I bet there are lots of families in upsidedown mortgages because they took equity out of their homes…

2) No. Never take out of your retirement fund. If you are younger than 59.5 you will be hit by a 10% penalty from the Feds, a penalty from your home state, AND pay taxes on it. If you took out 50K, you’d be lucky to get 25K of actual cash after fines and taxes.

3) No. Do not take out personal loans. I say this nicely - are you nuts? If you don’t have the cash in savings, taking it in parent loans is just going to strap you with huge debt. Where’s your retirement heading with this? Sit down and do ALL the numbers… where will you end up if you take out 50K or 200K or more in these kinds of loans?

4) I recommend MODEST student loans. Don’t let the limits of the Stafford Loans be the guide (23K culmulative max with some supplimental figures). Instead - sit down and figure out what might be a reasonable amount of loans for your child to handle upon college graduation (assuming they do graduate). Plan for worse case scenarios - like he doesn’t graduate, or he takes 6 years - and be sure he can handle the debt load no matter what.

Use your local community colleges (very inexpensive). Use state or local flagship universities, not the private LACs and other outrageously priced places. Only go to the LACs if the family + student can afford it.

It’s okay to tell your kids “we can’t afford it”. You must, you must, you must protect your home and retirement so that you don’t become an elderly homeless person living in extreme poverty or a burden on your children in the future.

Annika