Paying for College

By September 2, 2014Credit Repair, Save Money

For most families, paying for college is an extreme challenge given the rising cost of tuition at both public and private institutions. With rising tuition rates, the majority of students are left searching for ways to cut the cost of attending college. Many people consider education to be the most important investment you can make, but there are risks involved with borrowing a large amount of money without a secure return on investment in sight.

That being said, a majority of high school graduates will want to go on to college. Below are a few of the more popular ways to secure college funds, as well as some of the inherent dangers you should look out for.

Credit cards. Credit cards can play an essential role in helping families manage the flow of expenses during the college years. However, using credit cards to help with college funding is only a good idea if you are able to pay off the bill when it comes due. If you start to accrue debt from credit cards it becomes less effective, since credit card interest rates are typically higher than those of student loans, and many colleges apply surcharges when bills are paid with charge cards. In addition, if you fall behind on your payments, you could accrue compounding debt, additional fees, and a damaged credit score.

Home equity. In some cases, a home equity loan makes sense to cover the costs of tuition. You are likely to get a better rate than you would with a student loan, for example, plus this type of funding is tax deductible.

But as with any financial decision, there are risks. If you choose this route and take on additional debt, it lowers the amount of money you can save for retirement or investing. In addition, with a variable-rate loan, you are likely to lose those low interest rates as soon as they inevitably climb back to normal.

If you’re a parent considering this type of funding for your child’s education, you should think long and hard about the possible consequences for you. Depending on your overall financial outlook and age, it could be risky placing your financial future in the hands of your child, as this might take you off track from focusing on your own long-term financial goals.

Retirement funds. Most people look to their retirement accounts to draw funds for the cost of college. Traditional and Roth IRAs both allow for qualified withdrawals to pay for education costs, with varying penalties or tax breaks depending on age and type of account. However, most financial experts would agree this should be your last resort. Going this route could leave you with penalties and additional taxes upon distribution, not to mention dramatically reduce your ability to grow your wealth through compound interest.

Private student loans. Loans are, of course, the inevitable route to take when needing to cover the cost of college. Interest rates are usually at a decent level and lending guidelines are fair. Because private student loans generally require a co-signer, they leave both parties—students and parents—partly responsible. However, not all private student loans are created equal. There can be a wide variety in rates, fees and rules, so it can pay to shop around.

Financial aid/government student loans. These are the most common college funding options, as well as the most beneficial. Government funding tools can include grants, work-study programs and federal student loans. But not all students qualify for the same programs. It’s important to understand which programs you qualify for and identify how much of the money is free, how much is considered a loan, and whether any of the funding is associated with a work-study arrangement. Regarding the latter, if you’re depending on funds from a federal work-study program or grant, they can be subject to performance and personal finances. What’s more, qualification for this funding can change from year to year.

Altogether, paying for college can be a true burden for most families. However, a college education can also lead to a rewarding career path and high long-term earning potential. It’s important to assess the risks and rewards involved before taking on any additional financial responsibilities. If you’re already struggling to pay off debt and your credit is suffering as a result, you may be a good candidate for credit repair. Let us at Ovation help you. We offer a wide range of credit repair solutions to help meet your individual needs.

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