Many families find themselves too wealthy to qualify for financial aid, but are too strapped to pay out-of-pocket for college education. This is how federal financial aid works since it is needs based. So what to do? What are your options?
Well, first don't rush and empty your retirement savings or emergency funds (if you have any). Protect what you have. Your child can always take out an unsubsidized student loan. Did you know that Direct Unsubsidized Loans are available to undergraduate and graduate students and there is no requirement to demonstrate financial need? Read more about it here.
Nevertheless, if you still want to help pay for your child’s tuition, the standard advice calls for two options: Get a student loan for parents or tap your home’s equity, if you have any.
Option 1a: TAKE OUT A FEDERAL STUDENT LOAN FOR PARENTS
You may be surprised to learn that you can borrow money for your children's college with a federal direct PLUS loan. If you or your child have already filled out the Free Application for Federal Student Aid (FAFSA®), you can apply for a PLUS loan on StudentLoans.gov.
PROS OF PLUS LOANS
CONS OF PLUS LOANS
OPTION 1b: Get private loans Private lenders also offer parent loans. Going the private route may be best if you have excellent credit. A high credit score may qualify you for a lower interest rate than you’d get with a federal parent loan. However, private loans don’t offer all of the benefits that federal loans do.
OPTION 2: TAP INTO YOUR HOME EQUITY In today's low interest rate environment, it's a great time to use your home equity. There are three ways to unlock your equity:
PROS OF TAPPING HOME EQUITY
CONS OF TAPPING HOME EQUITY
OPTION 3: GET A SCHOLARSHIP
Yes, we didn't tell you, but there is an option 3, and our favorite and what we recommend. Before you go taking out loans or mortgaging your house, have your child apply for scholarships. Check out our scholarship page here.
Also, remember that The FAFSA only covers federal student aid and not the financial aid from colleges and universities themselves. About 400 colleges, organizations and private high schools offer scholarships and grants.
Note that there are schools that offer full-ride scholarships and there are schools that have millions in dollars in aid packages to attract students. For example, University of Alabama has $100M for scholarships!
So apply for scholarships first! Get your GPA, ACT and SAT scores high. Do you know the magic numbers for getting scholarships?