Can you afford to pay for college?

By Penelope Wang, senior writer


(Money Magazine) -- At long last, your child's efforts have been rewarded -- a flock of college acceptances have arrived. But your joy is mixed with anxiety as you ask yourself a question echoed by parents across the country: How will we ever pull this off?

Your portfolio and house aren't worth what you thought they'd be by this point; and there's no such thing as job security these days. Meanwhile, any financial "aid" being offered is largely in the form of loans.

You don't want your child bearing an impossible burden, nor do you want your payments to threaten your other goals, like a comfortable retirement. So use these guidelines to help make sure that dream university doesn't turn into a financial nightmare for you or your kid.

Figure your contribution

When you compare grants awarded (a.k.a. free money) with the cost of that first-choice college, you're likely to see a big shortfall. You want to fill that as much as possible with cash vs. loans, so review your budget to see how much you can free up.

The wildcard is your job security. If it's shaky, consider what you could pull from assets if you're let go. But don't figure in retirement funds, or else you'll compromise your own future.

Cap your debt load

Students can borrow from $5,500 to $7,500 a year in federal Stafford loans, and parents can cover the rest with PLUS loans. But the recent rise in student-loan defaults gives evidence to the risks of taking on too much debt.

"I've always said students should avoid borrowing more than their expected starting salary," says Mark Kantrowitz of FinAid.org. With many 2009 grads unable to find work, however, he recommends being even more conservative. Other advisers suggest figuring out what the monthly repayments would be, then limiting your child's loans to no more than you could help with.

Generally, younger parents should aim to keep total debt payments (your kid's loans, PLUS loans, mortgage, and all other debts) under a third of monthly income. Those on the cusp of retirement ideally ought to stay under 10%, says Salem, N.Y., financial adviser Nancy Flint-Budde. So if you'll retire with a mortgage, reconsider whether you can afford to help at all.

Maximize the aid offer

Can't borrow enough by these metrics to close the gap? Ask the aid office for a second look.

If your situation has changed since you filed the FAFSA, the school may well increase its package, says Kal Chany, author of Paying for College.

Otherwise, your success depends upon how desirable your child is to the school. So you might let the office know if your child has a better offer from a rival institution. If the aid officers stick by their award, it may be wiser to opt for a less expensive school or have your child start at a public college, and then transfer in. That way, your kid can afford to follow her dreams -- which may include a pricey grad school.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.98%3.95%
15 yr fixed3.05%3.05%
5/1 ARM3.32%3.71%
30 yr refi4.05%4.03%
15 yr refi3.12%3.11%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Index Last Change % Change
Dow 16,805.41 127.51 0.76%
Nasdaq 4,483.72 30.92 0.69%
S&P 500 1,964.58 13.76 0.71%
Treasuries 2.27 -0.00 -0.09%
Data as of 3:26am ET
Company Price Change % Change
Ford Motor Co 13.78 -0.62 -4.31%
Microsoft Corp 46.13 1.11 2.47%
Apple Inc 105.22 0.39 0.37%
Bank of America Corp... 16.72 0.12 0.72%
Yahoo! Inc 43.50 0.90 2.11%
Data as of Oct 24

Sections

New York headlines took a straight forward and direct approach with NYC's Ebola news. More

The midterm elections are around the corner, and the economy remains a top concern. With unemployment down and inflation low, why do people still feel the economy stinks? More

Shares of Facebook recently topped $80. They've more than quadrupled from their post-IPO lows of two years ago. Can Mark Zuckerberg keep the momentum in mobile going? More

Using technology developed for the military and implemented in Iraq, schools have installed alarm systems that detect gunfire. More

If you're looking to fly this holiday season, the clock's ticking to get the best prices. More

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.