2 New Ways to Pay for College

Every fall millions of American families struggle with how to pay for college for their kids. This fall annual tuition for incoming freshman at CU Boulder ranges from $7,932 to as high as $11,782 depending on which school/major they will be in. WOW! On top of that, CU estimates that room and board, and other fees will total an additional $12,127. Total cost for first year of college is over $20,000 a year!

I graduated from college 18 years ago and tuition for my senior year was about $1500 and my room in a duplex was $120 a month. How times have changed!

I saw a statistic from Sallie Mae this week that said the average American family borrows 39% of the total cost for their kid's college expenses. WOW! That's about $8,000 a year they are borrowing for a grand total of $32,000 over 4 years.

Here are the traditional ways of borrowing to pay for college--student loans, student loans for the parents, and home equity loans. Unfortunately, many families don't have the equity in their homes they once had three to five years ago. Second, the ease of access to that equity is much more difficult today. For example, most banks won't do a home equity loan above 80% of their home's value. This third option may not be an option then.

Here's a fourth option for you. Buy a home or condo where your child(ren) will be attending college for the next few years. Your child(ren) will live in the home or condo and rent out the additional bedrooms to a friend or two or three and ask them to pay you rent instead of paying rent to the college. This will greatly reduce your monthly payment.

How much does it cost upfront? Here's the great news, FHA allows you to help a child buy a home even if they don't have a job and you just have to put 3.50% down! This also helps your child build a positive credit history with the best kind of debt possible--a mortgage.

Then, when your child(ren) are done with you can sell the home for a profit (hopefully) and use that money to repay any student loans you or your child have after graduation. Ta da! A new way to pay for college!

One final note--if your child has not owned a home in the last 3 years they will qualify for the $8,000 first time homebuyer tax credit even if you as the parents are on the loan and on title. But, they must close on a home by November 30th. Ta da! Another new way to pay for college!