You just heard that your child who is in college is getting less help than you expected. How now?

You just heard that your child who is in college is getting less help than you expected. How now?

The good news is that your child is in college and is preparing to enroll this fall.

The bad news is that you just found out the aid package your child’s school is offering is smaller than you expected. This means your share of the total cost of college may be greater than you bargained for.

The gap for some parents and students could be even worse if you consider the best schools in New England, with annual sticker prices before aid now $90,000 or more.

The average total annual cost will reach $60,420 at a private four-year college in 2023, according to the College Board. After taking into account the average aid offer to offset the cost of tuition, students and their parents are still bound to pay an average of nearly $35,000.

But even if students enroll in cheaper public universities, for any parent who doesn’t have a fat 529 college savings and investment plan, or whatever, it’s heartbreaking to realize that in the coming months you’ll have to come up with more more money than you expected.

Exactly how to do that is the question.

“There’s no magic bullet,” says Beth Walker, founder of the Center for College Planning Solutions and author of “Never Pay Retail for College.”

But here are some suggestions that may help, or at least give you some time to think about how to handle all the education expenses that will come up over the next four years — or longer, if you have younger children who are also planning to go. to college.

Your child may need to borrow money. Try not to feel guilty
If you don’t want your kids to be saddled with debt before graduating from college, you might want to think again.

Freshmen can take out a $5,500 federal Stafford loan at a favorable interest rate. Currently it is 5.50% but it resets every July. Over four years of college, students can take amounts up to $27,000.

What’s more, they don’t have to pay the money back while they’re in school, and they can get a favorable income-based repayment plan after graduation.

“It’s their best funding tool available,” Walker said.

If it really hurts to see them take on debt, remember you can plan now to help them pay it off once they graduate, she says.

Other loan options
Beyond Stafford loans, there are other borrowing options, but they all come with big caveats:

Private student loans: Some students can also take out private student loans, which don’t offer any of the flexible repayment protections they have with federal loans, and can come with higher interest rates.

But if your child has no credit history, you will have to co-sign the loan. Therefore, you should think about whether you can bear the risk of repaying the money if your child is unable to pay it, especially if the loan you choose does not allow you to defer payment until your child graduates.

Parent loans: Parents can also take out federal Direct PLUS loans. But Joseph Bogardus, a certified financial planner who specializes in college cost planning, isn’t a big fan because of the high fees (more than 4% of the loan amount), the fact that there’s no real break in the interest rate (currently 8.05 %) and parents may must begin repayment while the student is in school, unless they request a deferment.

As he says, “If you can’t afford $500 a month now, what makes you think you can afford $1,000 a month later?”

Your 401(k): Taking withdrawals from your retirement savings may be tempting, but it’s not a good idea. No one will fund your retirement if you don’t. But if you’re thinking about using some retirement money, make sure you first roll the amount from your 401(k) into an IRA. You’ll have to pay income tax on the money, but if you’re under 59-1/2, you won’t be subject to the 10% early withdrawal penalty in an IRA if you use the money for qualified education expenses, Bogardus said.

Your credit card: Bad idea. Skip to the next option. The average credit card rate is north of 20%. And if you can’t pay off a large amount right away or you can only make the minimum payments due each month, you risk never getting out of the debt cycle.

Home equity line of credit: If you’re in a tight spot for your child’s first year, and you have significant equity in your home, Walker says, you might consider an interest-only home equity line of credit as a short-term cash-flow option.

“That’s cash flow friendly while your child is in college,” Walker said. “You rent money cheaply to buy time to figure out how you’re going to do this.”

So, let’s say you take out a $20,000 interest-only HELOC at 8%. That means you’ll only have to pay about $133 a month in interest, or $1,600 for the year.

However, you have to repay the principal after a certain period – usually 10 years. And if you can’t do that in full, you’ll have to pay interest and principal on the remaining balance until it’s paid off.

Redirect current spending and savings
Even smaller steps can go a long way in closing the funding gap if you want to raise cash between now and the fall.

Calculate how much a teenager costs at home: Walker says parents often overlook the expense of having their children under the same roof. He recommends evaluating the costs of your college-bound students while they are at home. Think food, gas, entertainment, side dishes, etc. That’s money you can redirect toward college costs when they leave home.

Redirect discretionary income to savings: In the months before the bill for the first semester arrives, temporarily reduce your discretionary expenses (eg, travel and entertainment) and redirect that money to a high-yield savings account.

Temporarily pause or reduce some retirement contributions: It’s not optimal, but if you think you’re doing well in terms of your retirement savings, you might temporarily divert money from your paycheck that would have gone into your 401(k) or IRA for three next month and put it into the college cat instead.

But, Bogardus warns, “You don’t want it to be a crutch. Think of the oxygen mask analogy: When doing this, parents should be in a good position first for their own future, then worry about their student’s college costs.”

Be honest about what you can afford
College is one of the largest financial investments that parents and their children will make.

Ideally, key questions like “How much can we afford?” should be brought up no later than when your child is a sophomore in high school, where you can set better expectations about what kind of school you (and they) can afford, Walker says.

So if you find yourself bonding with your firstborn this summer, you can at least be more prepared when your second child starts thinking about college.

You should both look closely at the costs of different colleges, Walker suggests, and ask: Is a Bachelor’s degree from a school that costs two to three times as much as another really worth two to three times as much when the child graduates?

Also, Bogardus suggests checking to see if your state offers tuition assistance plans or subsidized loan rates for educational expenses. For example, he said, see if your state has a program that offers one or two years of free in-state community college, credits from which can be transferred to the state university where your child can earn their degree.