Sorry, kids, but it's for your own good.
No matter how generous a parent you are, the burden of paying for college shouldn’t fall entirely on you.
If your family has to borrow, the best way is for your child to take out federal student loans. They charge low interest rates and offer new, income-driven repayment plans that limit graduates’ loan payments to just 10% of their disposable income. What’s more, graduates who work for 10 years in public service jobs can have some of their debt forgiven.
The government will lend any undergraduate who files a Free Application for Federal Student Aid (FAFSA) at least $5,500 as a freshman, $6,500 as a sophomore, and $7,500 as an upperclassman.
If your student plans to attend a college that will cost more than what the FAFSA calculates as your expected annual contribution based on your income and assets, you can get some of the money to cover the shortfall in the form of subsidized federal loans. They’re an especially good deal because they don’t charge interest while your student is in school.
But any undergrad can take unsubsidized loans, where the interest clock starts ticking immediately.
Last year’s federal loans carried interest rates of 4.29%, and because interest rates have been falling in recent months, loans for the 2016–17 academic year could be less expensive still.
Another way for your child to contribute is through a job. Working 10 to 12 hours a week during the school year can generate $1,500 to $2,300, which is often enough to cover books and things like laundry, snacks, and entertainment. A summer job might bring in another $1,500 or more.
The benefits of working in college are more than financial. Research shows that students who work about 12 hours a week during the school year do better academically than their peers without jobs. Plus, many prospective employers like to see some work experience on a new grad’s résumé.
Working also teaches life skills like time and money management, says Leah Ingram, who writes a blog called “Suddenly Frugal” and has two daughters in college. “When Mommy’s paying, it doesn’t matter how much they spend. But when it’s their earnings it’s, “Holy cow, we need to cut!”” Ingram says. She and her husband require that their daughters work during the summer to pay for books (about $1,200) and during the school year to cover incidental expenses.
Don’t overdo it, though: Working more than 12 hours a week during school can impair academic performance and increase a student’s odds of dropping out, according to research by financial aid expert Mark Kantrowitz, vice president at Cappex.com.