Last time, we looked at how home budgets have been thrown off by the expected and the unexpected.  With such a volatile economy, most investment account values have been down.  It’s not just retirement accounts that have been affected.  College savings accounts are also down.  It also doesn’t help to see college costs increasing at such high rates.  College costs have been going up an average of 6% each year.  Now, many parents are wondering whether they will still be able to help their children with college expenses.  Here are some ideas that may help you determine the best way to help your children with their higher education expenses.

Start early

     While this may not work for parents with high school students at home, the concept of planning ahead has probably never been more appropriate.  Using the power of compound interest, putting smaller amounts of money away consistently over a longer timeframe will enable you to create a sizable sum of money that can be used for college expenses.

     Your child’s choice of schools is not important in the early stage.  The main idea is just to put something aside.  Even if it does not cover all expenses, it will greatly reduce the amount of money that you and your child need to come up with once your child begins college.

Start small

     Another idea that has worked well is starting at a less expensive school.  This can be the local community college or a less expensive, local public university.  Using either of these two options for the first year or two will reduce annual expenses up front.

     The first two years are mainly general education courses.  If your student works closely with a counselor, you can ensure that the courses taken during these first two years are transferable to the four-year university your child wants to attend.

     Remember, the degree is earned at the end.  An employer is less concerned with the school attended during first two years than with the name displayed on the actual degree.

Look for loans

     There are several opportunities for financial aid.  These can include both parent and student loans.  Loans can be taken regardless of financial need.

     It is important that your student complete the Free Application for Federal Student Aid (FAFSA) so that he or she is considered for all possible financial assistance available with the university.

     Student loans have relatively low interest rates and payments are deferred until the student completes school.  Upon graduation, most students find that the monthly payments are manageable with their new incomes.

Look for other financial aid

     In addition to loans, students may also be able to find a work study opportunity or scholarships.

     Work study allows a student to work on campus and earn money that can be used to pay down school expenses.  Encourage your student to work.

     You might also consider working out an agreement with your child to match them dollar for dollar for any money they earn toward their education.

     It will not only reduce the amount of money that you are spending, but it will teach your child responsibility and help them take their education more seriously.  We always look at things differently when we pay for them ourselves.

     Scholarships may be available for a variety of reasons.  There are athletic scholarships and merit-based scholarships.  There are also scholarships within departments that are less popular.  The departments offer financial assistance to encourage more students to consider that field of study.

Do not go into the retirement account

     Parents can be supportive of their children to a fault.  Although we want to encourage children, it is important to remember not to withdraw retirement assets to pay for school.  Retirement comes sooner than we think, and it is usually extremely difficult to replace the money taken out.  Do not forgo your retirement to fully fund your children’s education.

What about my current accounts?

     As long as your money is invested in quality mutual funds, the values will come back over time.  Some parents have more time than others.  Parents of high school students may not see enough of a rebound before they need the money.

     If the market has not rebounded before you need to access your money, consider the ideas discussed previously and try to pay the remaining college expenses out of pocket.  You can then reimburse yourself when the account values improve.