As a result, many families acquire more college debt than they should from multiple sources that aren’t scrutinizing their finances. Borrowers assume nobody would loan them the money if they couldn’t repay it, she says, but that’s not true.
Walker, also the founder of the Center for College Solutions, a Colorado Springs-based consulting firm for families, is trying to get parents to approach college the same way they consider other big-ticket purchases.
“Spending $20,000 to $25,000 a year at a state university for four or five years for one kid is like buying a fleet of cars,” she says. “If you’re doing that for two or three kids, it’s like buying another house or a vacation home.”
Parents could use help with in-depth cash planning as they simultaneously try to fund their current lifestyle, stay on track for retirement and pay for college, says Walker. She created a spreadsheet template to help clients track all sources of funding for every year they’ll have children in college.
She also suggests parents consider finding a lending partner. Many parents don’t want their children to graduate with debt, but letting them take direct student loans from the federal government can benefit the whole family, she says.
The loans can help parents manage cash-flow challenges, she says, and if they deposit the principal amount in their children’s accounts within six months of graduation the kids can repay the debt interest free and build their credit.
The limits for direct unsubsidized loans (which are available to dependents and aren’t based on need) are $5,500 for first-year students, $6,500 for second-year students and $7,500 for third- and fourth-year students.
Parent PLUS loans and installment plans that enable college payments to be spread over a semester or a year can also help with cash flow, says Riskin. Some business owners he works with use PLUS loans to pay fall term bills and then pay off the loans in January after their busy season. Both tools may work well for anyone whose income is seasonal or largely dependent on bonuses and commissions, he says.
Kantrowitz also thinks tuition installment plans make sense. The fee is usually less than $100, there is no interest and “it’s almost always cheaper than borrowing the money,” he says.
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