How far should parents go today to pay for their children's college education? Some will bear any burden, sign any loan. Others won't. Increasingly, children rather than parents are borrowing the money.
There's no easy way of threading your way through this financial and emotional swamp. But here are some things that college-aid counselors want you to think about:
* Don't let your child go to a school you can't afford. On paper, this sounds obvious. But it's not so obvious when the child's eyes light on a school whose five-figure cost starts with a "3" or even a "2" and your income is in the middle range.
You might have worked hard to accumulate a college fund and thought that your money, plus college grants and traditional student loans, would get you through. Then you discover that even with aid you'll be, say, $10,000 short--and the college may not cover that gap.
Faced with this, some parents want to load up with loans or dissolve their IRAs. "Don't," says Patricia Ennis, assistant director of student aid at Syracuse University in New York (total sticker price this year: $30,280).
"I tell them to look at the whole picture over the next four years, and think about how those loans would impact the rest of the family," Ennis says. "The school may simply be unaffordable."
Choosing a college is like buying a car, she says. You pick the model you can afford. There are fine schools at all levels of cost.
* Don't take unnecessary loans. Low-income students might get through loan-free, by living at home and commuting to a state or community college. Their own earnings plus state and government grants might cover the cost in full.
Students who want to live away from home should apply to both state and private colleges and compare the offers. See which one requires you to borrow the least. The size of the loan should weigh heavily when you decide which school to choose.
Expensive schools sometimes give you a better deal than mid-price schools do, because they can provide more student aid.
* Don't stand by while your child overborrows. "I'm surprised at the number of parents who don't have a problem with their son or daughter taking out as many loans as they can," says Kerrie Cooper, director of financial aid for the State University of New York's College of Technology in Canton.
Students often take a federal loan ($2,625 to $5,500 for undergraduates, depending on which year of school they're in). Repayments begin when the child leaves school.
If student loans are not enough, the government offers PLUS (Parent Loan for Undergraduate Students) loans for parents. Parents can borrow the difference between the amount of money they have on hand and the college's total cost. Repayments on PLUS loans start right away.
Many parents are balking, Cooper says. Maybe they're close to retirement and don't want more loans. Maybe they can't handle more monthly payments. Maybe they think college should be the child's responsibility.
Instead of PLUS loans, many families are turning to "alternative" or "private" college loans, made by banks or state agencies.
Private loans normally go to the student, often with the parent as co-signer. Repayments don't have to start until the student leaves school. The variable interest rate currently ranges from roughly 8 percent to 10 percent, with no ceiling on how high rates can climb.
By contrast, PLUS loans currently cost 7.72 percent, with the rate capped at 9 percent.
"I recommend the PLUS loans for parents first," Ennis says. "I don't like to see students take on so much debt."
Cooper thinks students don't understand the impact that big loans will have on their lives. "When they leave, they're often surprised at the total they've borrowed," she says.
* If your children are still young, don't overlook the terrific new college investment plans-- called 529 plans--being created by many states. You put your money into a plan, and it grows tax-deferred; when it's withdrawn for higher-education expenses, the gains are taxed in the child's bracket. You can use the money at any school, in any state.
To see if your own state has a plan, ask the financial-aid office of a nearby college or check www.collegesavings.org. Or join the excellent plans offered by New York (1-877-697-2837, managed by the teachers' pension fund, TIAA-CREF) or one of the three plans managed by Fidelity (1-800-544-1914).