Don't go into hock for child's college costs

Dear Bruce: Our oldest daughter is entering her senior year in high school this month. She has a 4.0 grade point average and is in the top 5 percent in her class. She is planning on attending a state college that amounts to approximately $12,000 a year, including living expenses. She would like to get a degree in either pharmacy or accounting, which means at least six years or more. We are a middle-income family with two younger children. We are wondering what your advice is to pay for this and for the other two to go through college with the least amount of lifestyle changes. I am seriously considering another part-time job in addition to my full-time teaching job. Our daughter will also work part time to cover some expenses. What scholarships, grants, loans are best and most likely to come through, and where should we look to get them? We have a year to work on helping to finance this adventure. – Reader, via e-mail

Dear Reader: Congratulations on having a youngster that has done so well in high school. You mentioned that you were middle-income, but I’m not sure what that is. Your best bet, at least in the beginning, would be to check with the financial aid office at the school that your daughter will be attending and see what grants and student loans, if any, she will be eligible for. If your daughter has not picked a school yet, this could be to her advantage. With her grades, several schools may throw scholarships at her to entice her to come to their school. This can definitely work in her favor. One thing that the colleges and universities will also look at is how active she was in school and how much community service work she did. While I applaud your willingness to get a part-time job to help support your youngsters, I have never believed that parents should put themselves into hock to get their kids through school. On the other hand, I have no reservation whatsoever seeing kids go into hock. They are, after all, the beneficiaries. I’m delighted that your daughter will be working, and she should avail herself of all the student loan help that is possible.

Dear Bruce: Several weeks ago a letter appeared in your column protesting the fact that deserving students whose parents had been frugal but had too much income to qualify for scholarships were denied. As a school administrator, I saw this happen too frequently. My will specifies that the scholarship I establish must go to just such students and no others no matter how “needy” or disadvantaged they might be. Perhaps others who are setting up scholarship funds might like to consider taking this route. – J.L., Palrump, Nev.

Dear J.L.: What a great idea. It would appear that you have no family beneficiaries, and establishing a scholarship of this kind, which rewards families that have been frugal but who are now – in many cases – penalized, puts your money where many of our mouths are in saying these families should not be discriminated against and sets an example. Congratulations.

Dear Bruce: I graduated from college in the spring of 2000. I consolidated my student loans at a then great rate of 6.5 percent. Now that the rates are lower, 6.5 percent doesn’t seem so great. Are there any programs that allow for re-consolidating of student loans? – J.S., Baltimore, Md.

Dear J.S.: In the case of most student loans, you have one bite of the apple to lower the interest rate and, in 2000, that seemed to be the thing to do. As interest rates are now very low, lots of us wish we could refinance loans, but in many cases that’s not possible. You received your education, and 6.5 percent is not an unreasonable price to pay. As your personal situation improves, you may be able to borrow money from another source and pay off the student loan. Always keep in mind that different types of borrowing have different tax consequences.

Dear Bruce: I am giving serious consideration to law school. I am 41 and single with no children. My current salary is $65,000 a year. I have been contributing 15 percent to a 401(k) with a 50 percent employer match for 10 years. I max out my Roth IRA every year. I have less than $2,000 in total debt. I plan on working until I’m at least 70. I am assuming that I can gain admission to a top 50 school and borrow the money at today’s low student loan rates rather then drawing down my savings. Is taking on substantial debt and foregoing three years’ worth of salary and savings in order to acquire a law degree a reasonable financial risk for me to take? – M.R., via e-mail

Dear M.R.: Tomorrow is the first day of the rest of your life. Why not? Lots of people have changed careers and gone back to school at your age. There is no reason, however, why you can’t continue to earn a reasonable income while going to school on a full-time basis. Many have done so. Why dig a huge hole with student loans when it’s not necessary? I’m also wondering about the top 50 choice. If you are going to try to get a job with a major law firm, the choice of law school is critical, and unfortunately, the major schools generally are a great deal more expensive. Getting a job at one of these firms in your mid-40s is also more problematic. If you are thinking about going into your own practice, where you go to school is not as crucial, which means the tuition cost can be considerably less.

Dear Bruce: I’m 42 and my husband is 47. We have a 13-year-old who will be in the eighth grade this fall. Our net income is $46,000 a year. We have $65,000 in a 401(k) and mutual fund, and around $12,000 in savings. Our home, valued at $160,000, will be paid off the end of this year. I want to invest the $420 mortgage payment after the house is paid off for our son’s college fund. He currently has $4,000 saved in a mutual fund. What would be the best way to save the most money in five to seven years? If he decided to go into the military and didn’t use the money for college, what would be the best savings plan for this? – K.D., Atlanta, Ga.

Dear K.D.: You can put your money into a Coverdell Education Savings Account, in which you can put up to $2,000 a year. If the money is used for higher education, then the earnings will be tax-free. If college does not follow, then the money can be withdrawn, but there are tax consequences. I would not put the money directly in your son’s name. There may be minor tax advantages, but with the income you’ve described, perhaps none. The heavy-duty downside is when the youngster reaches his majority, he will have access to that money and he may or may not use it wisely. Another variable is the more money that you earmark for his education, the less possibility of grants being offered.

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