Stern Advice: Last-Minute Ways to Find Cash for College

It's the time of year when new college students start buying notebooks, but after paying the year's tuition bills, notebooks could suddenly become unaffordable.

Parents are scrambling, as average private-school tuition tops $21,000, and many schools top $40,000, according to Department of Education figures. Those figures do not even include room and board, pizzas, iPads, colorful bedding or spring break trips.

What's a parent to do, especially at this late date? Schools have long handed out almost all of their financial aid for the year and money is tight.

First, don't give up: All those people speculating that college is not worth the price probably wouldn't bet their own children's future on that.

By 2018, as many as 63 percent of all U.S. jobs will require a post-secondary degree, according to new research from Georgetown University (tuition: $40,920 a year), which found the earnings gap between those with degrees and those without, remains a vast chasm. College-educated workers can expect to earn $1 million more over their careers than folks who stopped after high school.

Second, don't go crazy. Parents should avoid sacrificing their own retirement savings to the college gods.

So, figure out a way to pay, but don't go bankrupt trying. Here are some last-minute guerrilla techniques for lining up the cash for class.

-- Start small. High-school seniors may not want to spend their first year commuting to the local community college, but when you show them the money, they may reconsider. That's what Brian Fricke and his wife Annette did when their two sons approached the college decision. "We sat them down and said, 'between the two of you, you're going to save us $60,000 by starting at community college. Down the road, we'll be in a better position to help you out with a downpayment on a house or funding a business or whatever.'"

Both sons opted for the local start; the older one has already transferred to a four-year school and the younger one is starting his sophomore year. "My goal for my sons is that they both graduate college with zero debt," says Fricke. Oh, both sons now also own their cars outright. Even if you don't think a year or two of community college works for your child, they can fulfill their prerequisites there and possibly shave a costly semester off of their college career.

-- Deconstruct the aid offer. Look at the package your child was offered. Some of it may be in the form of subsidized loans, some of it unsubsidized loans, some of it pricier private loans and some of it grants and work study. Take the grants and think carefully about whether the loans are your best deal; you are allowed to pick and choose what you want out of the package. If your family's financial situation has changed for the worse, with illness or job loss, you can go back to the financial aid office and ask for more money.

-- Pay as you go for extras. The aid package is usually designed to cover all of the costs of a year of attendance, including transportation, a computer, food and the like. Don't borrow for all of those add-ons, says Howard Freedman, a private financial-aid adviser in Stoughton, Massachusetts. You can probably pay for them out of current income or short-term borrowing on a credit card perhaps.

-- Jump start the whole deal with the 529 plan. If your child has a 529 college savings plan, use up that money first. That buys you some time to come up with other cash and helps avoid the possibility that you will end up with money left over in the 529 plan.

-- Go on a payment plan. Most colleges offer some kind of plan where you can pay monthly instead of the whole bill at once. That enables you to stretch out the payments (and the borrowing, if you're using a home-equity line or some such). Even when there is a charge to do it, the payment plan can smooth your finances for the college years.

-- Be creative. Even a blowout garage sale can raise some money for college. So can encouraging your child to ask for a one-year deferral on their acceptance and then work and save for a year. Or have her go to school part time and work full time. Ask your employer whether your company offers any sort of family education benefit. Maximize the child's earnings: Students who know a lot about computer programs, for example, can earn a lot more as consultants than they can working for minimum wage at the corner sub shop.

-- Borrow elsewhere. Private college loans (and even some unsubsidized federal loans) aren't such a great deal and you may have a cheaper and better source of money. Brian Martin, an Edina, Minnesota, wealth manager, tells his clients to consider borrowing from cash value life insurance policies, home equity lines or even a 401(k).

Rates can be far lower than they are for private college loans. When you borrow from your own 401(k), you are really paying that interest back to yourself. The interest on a home equity line of credit can be tax deductible and you can limit your borrowing to the amount you actually need, when you need it.

-- Hit up the extended family. Is grandma suffering with bank CDs that are paying 1 percent or less in interest while you shell out 7.9 percent for "Plus" (parent loan for undergraduate student) loans? Ahem, you might be able to work out a private loan deal. Just make sure you can really keep up the payments and not leave Granny in the lurch. If grandparents actually want to help pay for college, they can send their checks directly to the school and not have it count against the annual gift tax exclusion.

-- Cut extra expenses to the bone. If your child is going to be on a college campus for a couple of years, you can sell his car, or at least take it off the road and save on insurance, says Freedman. Don't buy big meal plans for kids who are little eaters. Don't spend money buying college-sponsored health coverage if they are already covered by your insurance plan. You may even consider (dare I say it?) canceling the spring break trip and encouraging your scholar to earn some money over vacation instead.

(The Personal Finance column appears weekly. Linda Stern can be reached at linda.stern(at)thomsonreuters.com)