A foundation for financial goals

College Cash in a Crunch

College. Yeah, you knew it was going to cost a lot, but it just keeps adding up. There are numerous ways to fund higher education and when you start investigating, it can sometimes seem overwhelming. If you can get a basic understanding of what is out there, youll have an easier time getting into more depth with the approaches that will work for you.

Here are ten tips for finding money for college education expenses, even on short notice. As with most anything, there are advantages and disadvantages to each of these options. After reading the list, talk to counselors at school or contact LGFCUs Financial Services staff. Be sure you understand the answers to your questionsask them differently if you dont and most importantly, learn what questions to ask.

  1. Financial Aid includes scholarships, grants and loans. Scholarships and grants do not have to be repaid; student loans must be repaid. Stafford loans allow students to borrow and defer payments until after graduation from college. PLUS loans are designed for parents to borrow on the student's behalf for education expenses. The first step in the financial aid process is to complete the FAFSA (Free Application for Federal Student Aid). Contact the financial aid office of your school for more information.
  2. 401(k) loans or withdrawals are another consideration in funding a college education. Loans must be repaid and the repayment interest rate may be less than the account is earning in investments; however, only use this option if other sources are not available—this could hurt future plans. Hardship withdrawals are also a consideration if no other funds are available. The downside is that hardship withdrawals are still taxed as income. You should discuss this option with a tax expert before acting so there are no surprises at tax time.
  3. Life Insurance policies sometimes have a cash value component. Again, an urgent need for cash can be resolved by borrowing (if allowed by the policy) or by withdrawing the cash value of the policy. Note: you are giving up life insurance protection if the money is withdrawn (cashing out) and the withdrawal will likely be taxable.
  4. IRAs represent another source of education funds. The Traditional and Roth IRA allow withdrawals for educational expenses. Traditional IRA withdrawals will be taxable, although an additional penalty will not be assessed. Roth IRA withdrawals are not taxable since contributions are on an after-tax basis. Principal amounts can be withdrawn from a Roth IRA at any time; however, earnings may be taxable if a five-year holding period requirement has not been met. Remember, withdrawing funds from a retirement account is money you will not have in the future.
  5. Working students can help raise their own funds for educational expenses. Options to consider include work-study opportunities through the college, working a part-time job while in school and working full-time during breaks and definitely over the summer. When applying for jobs after college, employers may see the balancing of school and work as a plus.
  6. Parents working overtime or adding part-time work are other ways to acquire funds for college expenses. There are only so many hours in the day; yet, some parents would rather put in more hours themselves so the student can concentrate on studies. Perhaps a parent’s hobby, like woodworking or knitting, can be turned into a way to make additional income.
  7. Scholarships were mentioned above as part of financial aid. Please remember scholarships come from the private sector as well. Community organizations and businesses often have scholarship funds. The high school guidance counselor is a great resource for information on private scholarship funds.
  8. Liquidation of assets serves as an option to consider for raising funds for school. For example, if your student drives an extra family car during high school and will not be allowed to drive to college, selling a car that otherwise would be parked might make sense. Or, clean out the garage, attic and closets and have a yard sale. This idea helps you get more organized around the house and raise money at the same time.
  9. Home equity loans are one of the best options on this list. Interest is generally tax deductible and this loan is a line of credit, which means you can draw against the line of credit as often as needed.
  10. Personal loans do not offer the tax advantages or lower interest rates of home equity loans; however, this does not make them a bad option. Repayment does begin immediately. On the other hand, this loan may be quick and ideal for smaller loan amounts needed on short notice.

Not all of these methods will work, but one or two will likely work for everyone to some degree. Being creative in how you raise funds for college can be rewarding and beneficial. Find out what others are doing, talk to as many people as you can and don't give up—a college education can make a real difference in life.