23 Aug Finding money for that last college bill

Q. We will need more money to pay for college. We think we will be $45,000 short, but that won’t happen until our daughter is a senior in two years. Should she take loans or should we use home equity?
— Shorty

A. With the cost of college these days, most families face funding questions.

It’s always a balance between college and your other financial goals, including providing yourself with a comfortable retirement.

“When it comes to college I believe that you have a responsibility to provide not only for a college education but for yourself as well,” said Bill Connington of Connington Wealth Management in Paramus.

He said parents can borrow for their children’s education in a variety of ways.

The most common is to take advantage of Parent PLUS loans.

“These are loans that are taken out in the parent’s name to be used for their child’s education,” Connington said. “They can also take out private loans and some parents even resort to taking out home equity loans.”

Connington said while this may seem like good ideas in the short term, they may not be the best option to payout the final year of your daughter’s education.

First off, he said, the loans taken out by the parents offer very few options.

“There is not option for loan forgiveness, the way that their loans are repaid is determined by the lender and finally if a parent takes a loan out on their home equity, they face a couple of challenges,” he said. “Although interest rates are low at this point, they will likely rise in the future, payments on the home equity is due right away versus being deferred and the only one liable for this debt is the parents.”

Connington said parents have to remember they cannot get a loan for retirement, but children can get help in paying back college loans.

He recommends you look to see what other financial aid programs could help.

“Many schools have programs that could help students with the cost of college along with looking into what is available in grants and scholarships,” he said. “This also may help to defer costs that you are paying now and reduce the need you will have for her senior year.”

With loans in your daughter’s name, he said, there are a lot of future repayment plans that can keep the payments low.

He said it is important to look and see how the overall financial future will be affected by borrowing money for college in the parent’s name, so look at the other alternatives before taking the home equity.

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This post was first published in August 2016.