Copy and post by Mei Ling Lin
(Money Magazine) -- You've been waiting for this moment for nearly 18 years: Your baby is almost ready for college. Your finances, not so much. The market's protracted free fall means that your college fund is now worth just a fraction of what you need. Your home's value has no doubt dropped sharply too - no help there. The only thing that keeps going up, you guessed it, is college tuition. So it's goodbye, Dream School U., hello, Central State, right?
Wrong. While there's no denying times are tough, you have more options to help pay for that BA than you think. From targeting the right schools to taking advantage of new financial aid rules and tax breaks, you can get the price to a manageable level. These steps will ensure your kid ends up at a great school you can really afford.
1. Use your savings strategically
The typical 529 college savings plan of a high school junior or senior has dropped 12.5% in value over the past year. And if you didn't invest in an age-based portfolio that automatically shifted into safer investments as your child got older, your losses may be far worse. The big question before you: Should you try to hold off withdrawing money from the account to give your savings time to bounce back?
Unless you have another source of ready cash you can use to pay college bills - if you can squeeze more out of current income, say, or have other non-retirement savings you can tap - the answer is no. Since most of the money in your 529 is (or should be) in cash or other fixed-income investments by now, a big surge in stocks won't help you much.
And it would be a Hail Mary strategy to shift back into stocks in the hope of catching a meteoric market rise in the next year or two. Certainly it makes more sense to pull money out of a 529 than to take out a college loan before it's absolutely necessary; borrowing sooner will probably add to your interest expenses in the long run.
Don't worry that using 529 funds early will hurt your chances of getting financial help later. Although withdrawals used to be treated as income, which is counted more heavily in financial aid formulas than savings, that's no longer the case. To see how much assistance you may get, use a financial aid calculator, like the one at finaid.com. For the most accurate assessment, do both the federal calculation, used by public colleges, and the institutional one, used by private schools.
2. Apply higher - and lower
With endowments down 25% to 30% in the past year, colleges have been slashing budgets, cutting everything from new construction to faculty. One program that top-tier schools haven't cut: the more generous aid packages they began offering families last year in response to congressional criticism over their use of endowments.
More than 50 elite schools - from Pomona to Princeton, Stanford to Swarthmore - now have programs that limit or eliminate loans, or otherwise help defray costs, even (in many cases) for families that make well over $100,000 a year. The effect is to make these schools less expensive than many state colleges.