WHEN YOUR KIDS’ COLLEGE FUNDS ARE ON LIFE SUPPORT
Adjust your game plan
Over the past few months, Ross Levin has handled plenty of calls from people “freaking out” about the bath they’ve taken in their 529 college savings plans. It’s important to point out that if your child is less than two years away from college, his assets belong in safer places than stocks. It may seem too late to fix this, but you can sell the stock now and supplement the portfolio with loans. And as Levin points out, since almost no one has saved for college fully, you don’t know in which year you would have used the money: “If you have two years of tuition saved, you can use it for years three and four, and that will give the portfolio more time to come back,” he says.
To make up the difference, look into loans
Now’s the time to research financial aid (work through the calculator at fafsa4caster.ed.gov to see what kind of help you may be able to expect) and scholarships (check fastweb.com and collegeboard.com/scholarships).
Pay down your house
For anyone who has lost confidence in the ability of 529 assets to grow as promised, and for those who want to qualify for the most aid, McClanahan suggests this strategy: Stop contributing to the 529, and pay down your mortgage instead. Here’s why it works. When you apply for college financial aid, the formulas do not take into account the equity in your home or the money in your personal retirement plans. So if you own a $500,000 home outright and have $10,000 in a 529, you’ll qualify for more help than you would if you owed $200,000 on your house but had $150,000 in the 529.
YOUR OWN TEETERING FINANCES
If your family is caught in one or both of these situations, only you can determine how much you can sacrifice to help your loved ones. But one thing remains important: Do not take such a big financial hit that you jeopardize your own future. I say this as both a daughter and a mother, and I know that it is hard advice to swallow. Still, you have to put your own retirement needs first. Ultimately, by keeping your finances in order, you’ll help make sure your kids don’t end up sandwiched too.
Jean Chatzky is More’s personal finance columnist and the author of several books. Read more of her advice here.