Finding money if you haven’t saved enough for college

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 Q. I know we haven’t saved enough for college and my daughter will need to take some loans. What are the best options? I’m willing to take parent loans too, and I do have an unused home equity line of credit, but I don’t know what kind of borrowing is best. Help!

A. Before you start taking loans, think about whether or not it’s worth it.

You need to consider the amount of money being borrowed compared to the potential income your daughter will earn after she gets her degree, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Boonton.

“While everyone would like to send their kids to a great college that everyone knows, in most cases it is simply not worth the extra money and the debt that the students and parents take on,” Lynch said.

Instead, he said, the ideal financial situation is a community school for two years to get the core classes taken care of, and then transferring to a good state school. That will give your student a degree from a good, well-known school like Rutgers, and it will cut the cost substantially.

“You can borrow for college but you can’t borrow for retirement so think about taking on debt that you really can’t afford,” he said. “Taking on debt at certain points of your life can mean that you will be working for the rest of your life, even if you are just a cosigner. You can only do what you can do.”

If you’ve decided to take on the debt anyway. it’s important to look at current interest rates and the availability of debt through each option, said Bryan Smalley, a certified financial planner with RegentAtlantic Capital in Morristown.

In today’s low interest rate environment, a home equity line of credit (HELOC) may be an attractive option if the rate is lower than the options available through student loans, Smalley said.

“If the interest rate on the HELOC is more attractive, then it will be important to evaluate if there is enough credit on the line to cover the needed college costs,” Smalley said. “Even if you do not have a large enough credit line to cover all of the college costs, you may want to first start with the HELOC.”

By using your HELOC, Smalley said you may get the benefit of deducting your interest on your tax return. But, he said, be aware that most HELOCs have variable rates which are subject to change, meaning if interest rates go up it may not be as attractive of an option.

Smalley said you should next look at the student and family loans available through the federal government.

“When going the loan route, it is best to have your daughter apply for a Federal Stafford Loan first.” he said. “The fixed interest rates on the loan are less than that of family and private loans plus there is the potential to have some of the loans subsidized along with flexible repayment options.”

However, there is a cap on the amount a student can take out each year through the Federal Loan program. For 2014, the cap for a freshman is $5,500 and it increases to $6,500 for sophomores and $7,500 for juniors and beyond, Smalley said.

“Since this amount may be less than is needed to cover your daughter’s college costs, Federal Plus Loans are the next set of loans I recommend applying for,” he said. “These loans allow a parent to borrow up to the full cost of undergraduate schooling, minus any other aid received by the student.”

Smalley said the interest rates on these loans are fixed, but higher than those of the Federal Stafford loans available to undergraduate students.

After that, there are always private student loan options, but Smalley said he recommends avoiding those if at all possible because of higher interest rates and less flexible repayment options.

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This story was first posted in November 2014. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.