What to Do When Your First College Bills Are Shockingly High

NEW YORK ( TheStreet) -- While college freshmen nationwide are busy decorating dorm rooms and navigating campus, parents are opening the mailbox to find their first bills from the university. With additional costs for meal plans, textbooks, living expenses and entertainment, many families are just now getting a complete picture of their financial obligations.

Unfortunately, even parents who have prepared for their child's education with savings bonds or 529 plans may find their money isn't going quite as far as they'd hoped. But all hope is not lost: Experts say there are a few sources for last-minute funding that will ensure your child makes it through their first semester successfully.

"This is an issue we are seeing more and more these days," says Brad Dinsmore, executive vice president for consumer banking and private wealth management for SunTrust Bank ( STI) in Atlanta. "With the bad economy in recent years, saving for school just became that much more difficult. A lot of families went from a two-income household to a one-income household, and they're finding they don't have as much as they thought."

Any family facing college financial woes should first turn to student scholarships, grants and student loans, Dinsmore says. Although parents may want their child to graduate debt free, that's not always possible. While mom and dad's desire to bear the burden of university expenses is admirable, children should be encouraged to find their own money for college wherever they can.

"We always recommend that students and their parents have a conversation with the financial aid office to review their financial aid package to see if there are any options before deciding to take out a loan," says Brendan Coughlin, president of education finance for RBS Citizens Financial Group. "Then we encourage families to explore both federal and private loans to make sure they choose the one that best fits their needs."

There are some parents who will find better rates and more flexibility in the private loan market, Coughlin says. For example, if you find you're going to need just a few thousand dollars this year, Dinsmore recommends taking out a small loan on the private loan market.

"Private loans help fill gaps when federal student loans aren't enough," he says. "We see a lot of people looking to private loans when students have accounted for the basics but not for new shoes or concert tickets or a meal plan. They just need a few thousand dollars."

Although this option is helpful for many families learning their way around a college budget, Dinsmore cautions that this loan needs to be looked at as a one-time only occurrence.

"As soon as you take out that money, right on the heels of that you've got to set a budget and talk about the choices you've made so far this semester so you don't find yourself in the same situation next year or next month," he says. "This shouldn't become a habit, and it's shocking how many students just don't take time to sit down and do a formal budget."

Another borrowing strategy most parents have probably already considered at some point are wealthy grandparents, says Steve Williams, vice president of financial planning with BMO Private Bank. Instead of a Christmas gift or birthday gift this year, children could ask their grandparents for a college fund boost.

"Wealthy grandparents are always a good college planning tool," Williams says. "Most grandparents like their grandkids more than their kids, so this is a legitimate option."

While a $1,000 or $2,000 annual gift might not break grandpa's bank account, it can be incredibly helpful to a struggling student's budget, Williams says. Also, giving to grandchildren is something most grandparents feel good about.

"I think most grandparents prefer this kind of giving to presents since they know it's a good cause," he says. "They just need to be made to feel like it's a good investment. You may even want to Photoshop a picture of your kid with a cap and gown on in front of their college, just so grandma and grandpa can feel like it is a worthwhile use of their money."

When small loans and favors from parents aren't enough, Dinsmore suggests taking out a home equity loan, which lets families borrow money against the equity in their house and property.

"This kind of loan would be for a larger dollar amount and best for families with no other options available, as it's not ideal," Dinsmore says. "But it can provide the cash you need to make it through the next few years without maxing out your credit cards."

Credit cards should always be looked at as the "last resort" for paying for college-related expenses Williams says, as they offer double or triple the interest rate of student loans.

"Next to taking money earmarked for retirement and spending it on college, charging your expenses to a credit card is the worst thing you can do," he says.

Although many families may look at their 40(1)k and see "ready funds," taking a 401(k) loan to pay for college is a horrible idea, he says. Removing money from your retirement accounts will serve only to "set back your retirement timetable," he says.

"Even if you say you'll pay yourself back in a few years, the $20,000 you took out would have grown to $40,000, so you're losing money no matter how you look at it. You're losing a chunk of capital that would have compounded over time towards retirement."

In fact, Scott Darrah, an Ameriprise ( AMP) financial adviser in Council Bluffs, Iowa, suggests maxing out your retirement plan contributions.

"Consider maxing out retirement plan contributions to 401(k) plans and IRAs to get the income tax benefits, retirement benefits and shelter assets from the financial aid calculation," Darrah says. "If you have maximized these contributions already then consider maximizing your premiums payments into your cash value life insurance policies to help your policy grow more efficiently, shelter wealth from the FAFSA form and have cash available should you need it."

No matter how much extra money you find yourself needing at the end of this semester, Dinsmore says that proper planning can prevent it from recurring in the spring.

"Hopefully if you are finding yourself coming up short it's not going to happen again," Dinsmore says. "Every family has a variety of options for dealing with this to make sure it doesn't become a pattern."

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