Struggling with College Costs During the Market's Turmoil

I received an email from a mother this weekend who was worried about how the stock market implosion would impact the family’s ability to pay for their daughter’s education at one of the nation’s premiere universities.

The family’s investment portfolio has dropped 33% since the summer when their daughter enrolled as a freshman at Washington University in St. Louis. The girl aspires to be a doctor so she faces many years of education ahead of her. The parents are also worried about how they will pay for a younger child’s future college bills, as well as underwrite their own retirement.

The mom was naturally worried about what she could do in the face of this financial fiasco. She wondered if she or her daughter could identify grants or scholarships that could help them out.

I responded to her email and I also called Paula Bishop, a CPA in Bellevue, WA, who keeps abreast of financial aid issues, to pick her brain.

None of the alternatives are all that great, but here are the ideas that we kicked around:

1. You can approach a college and plead your case for financial assistance. You are free to do this anytime your financial situation changes. A job loss, death in the family, unexpected medical bills and divorce all fit into that category.

A school might not help you out if your portfolio tanks, but you won’t know unless you ask. A college might tell you that its aid has been exhausted for the year or it might offer you an institutional loan. Of course, when you file for financial aid the next year, a shrunken investment portfolio could make you more eligible for aid.

2. If your college account is underwater, you might want to borrow money for the tuition instead until your college account rebounds. If you borrow money, the federal Stafford and PLUS loans are vastly superior to private student loans. Another alternative is tapping a home equity line as an interim strategy.

3. This will sound drastic, but a family might want to explore a different school for the next year that will reward a student for attending. While the girl wasn’t awarded any merit aid from Washington University — tuition and room/board is $49,000 — other private schools would undoubtedly provide this bright student with a tuition discount.

4. The girl can look for private scholarships, but the real money comes from merit awards–also call tuition discounts– that schools themselves hand out to the students they want. While many parents think private scholarships are where the money is — that’s simply untrue. The average private scholarship today is valued at less than $2,000.

Learn more about college strategies in my new book, The College Solution.

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