Let’s assume you want to contribute some funds and help your child raise the rest. Whether college starts tomorrow or next week, some basic rules apply.
Put college money in a tax-free account.
I opened a 529 College Savings Plan for each of my daughters, and I try to contribute $100 a month. Getting into the habit is half the battle. (And if you have family that can help — perhaps in lieu of other gifts — spread the news. Any adult relative can open a 529 account for your child.) The money grows tax-free and can be used for tuition, room, board, and books. Money that isn’t used up can be transferred to a sibling; any other withdrawals are taxed. Rules vary by state.
Stash cash, too.
Loans and scholarship money may not cover things like dorm-room supplies. The money I save by cutting down on luxuries and earn by moonlighting goes straight into a special money-market account, separate from the joint account with my husband.
Get friendly with FAFSA.
The Free Application for Federal Student Aid, or FAFSA, is not only for subsidized loans; it’s also the first step toward applying for aid at private colleges. Warning: The application process is no fun. And if anyone in your family is self-employed, FAFSA can be a nightmare. I flunked my first run at it because I entered the wrong numbers for my husband’s business. You might want to ask your accountant for help.
Let your child borrow first.
If you need to borrow, start with a Stafford loan, which goes directly to the student. Over four years, your kid can borrow up to $23,000 at a subsidized rate. (To check rates, go to salliemae.com.) The student needn’t begin paying off the loan until she’s out of school. And you can always help your graduate with the loan payments.
Check out deals for parents.
As soon as you send in your FAFSA forms, you’ll start getting loan offers in the mail. Regardless of financial need, parents can apply for a PLUS college loan, offered through banks, which charge about 8.5 percent interest. Details differ.