With the cost of college tuition rising as fast as stocks are going down, students have to be pretty darn creative in terms of financing their educations. According to The New York Times, college tuition has increased 439 percent between 1982 and 2007; and there’s no sign of those increases slowing down in the immediate future.

Colleges understand that they can no longer assume students and their families will pick up the slack and pay the higher tuition. There comes a point where the financial pain threshold is just too great, especially in this economy. Therefore, colleges are doing what they can to ease the financial burden on students by offering creative financial solutions that still adhere to their bottom line. But are those options always as beneficial to the student as the colleges might have you believe?

Sneaky Payments

Because college tuition is now almost as expensive as buying a second home, many colleges realize that most families cannot afford to pay tuition in one lump sum. So many colleges have devised their own interest-free payment plans that allow students to pay their tuition over the course of the semester (usually in monthly payments). Sounds great, right?

But make sure you read the fine print. Even though they’re meant to save you money these sneaky plans can actually end up costing you more. How so? Because most colleges outsource their payment plan billing to third party vendors, who then tack on some sort of service fee. Which means even though the college doesn’t charge you interest, the third party vendor does (or at least a flat fee). Add to that if you pay your monthly payment with a credit card, then you’ve got your credit card interest on top of that. So what was supposed to be an economical way for you to manage your college tuition ends up costing you anywhere from three to 15 percent more, depending on the third party service fees and your credit card interest.

Before you commit to any college tuition payment plan, be sure to ask if the college manages their own billing or if they outsource it. If you have no choice but to make payments either way, at least you’ll know what you’re getting yourself into in terms of fees.

Alternatives

If you’re going to have to borrow money anyway to pay for college, trying going to relatives for money before turning to banks, credit cards, or student loans. Grandparents, for example, can give up to $10,000 (with no strings attached) without the student recipient having to pay a gift tax. If they contribute the money directly to a 529 college plan, then they can contribute up to $13,000, with a max of $65,000 amortized over five years. Little known fact: $65,000 (or less) can be donated (to the 529 plan) in one lump sum without incurring a gift tax, as long as the total donation averages out to be $13,000 over five years. So, for example, if Grandma donates $45,000 in year one, she can donate an additional $20,000 between now and year five.

However, 529 plans don’t do you much good if you’re staring down college tuition today. In that case, setting up a private loan with someone who can afford it is a better option than incurring student loans. The trick is convincing a private party you’re a good risk. The best way to go about this is to create a comprehensive loan package in the form of a business plan, and then present your plan just as if you were going to a bank to finance your business (in this case, your college education IS your business). Be sure to include interest rates, payment schedule, when repayment starts and ends, and repercussions for late or missed payments (even though you promise there won’t be any). Also state why you’re a good risk. For example, are you majoring in a field with a high employment rate (such as information systems or biomedical engineering)? If so then your chances of being able to pay back your privately held college loan are good. Bottom line: Be as professional as possible about asking for a loan. No one is going to loan money to someone who looks like a sloppy slacker looking for a free ride.

Sometimes there’s no choice but to embark upon a student loan to get through college. However, be very careful to read the fine print first and try not to finance your entire college tuition via loans. Use loans in combination with savings plans, monetary gifts, and money you earn from part time jobs during college. The last thing you want to do is graduate from college so deep in debt you’ll be digging your way out of that hole until you retire. No college degree is worth that.

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