Juggling act: How to pay for college

stick figure juggling blocks that say "Student Loans"

According to a recent study published by USA Today, analysts found that post-recession, parents can only afford to contribute about 27 percent of personal funds to their children’s college costs, a statistic that has lowered from previous years. The rising cost of college tuition rates combined with high unemployment and a tepid economic recovery are becoming an increasingly worrying concern for parents and young adults. Concern can rapidly turn into distress when faced with the prospect of barely manageable debt loads and diminishing prospects for the kind of employment needed to repay the debt. At the same time, education remains the key to economic advancement.

So, what’s a family to do?

First and foremost, it’s paramount that parents have a candid discussion with their children. A college education can be an invaluable investment, but the potential value of that investment – like any investment – depends on both the cost incurred by it and the potential outcomes derived from it. In short, they have to look at the cost of their education in light of their future aspirations. Although it may be difficult to set aside the Big Name School you’ve had your heart set on since you were a child, local schools may provide equivalent educational opportunities at a fraction of the cost. Paying off school loans will be a challenge, especially in the current environment, so choosing an economically feasible program is often the wisest option.

Second, it is often beneficial to have the young adult assume a portion of their educational costs – paying, in essence, for both some of the ongoing expenses and assuming some of the debt incurred. While some parents might argue that they don’t want to saddle children with debt after they graduate, there is a two-fold benefit to this approach – a benefit that may have deeper and long-lasting benefits. One side benefit is that it can lighten the financial burden borne by the parents allowing them to stay on track with their own retirement plans. Perhaps more important, young adults who take on a portion of the costs take greater ownership in their educational experience – both literally and figuratively – knowing that they are responsible for paying a portion of the experience off themselves. As a result, they are more focused and diligent in their endeavors. This produces greater mastery (and hopefully better grades) as well as a stronger work-ethic, which can produce a lifetime of dividends.

Below, we’ve compiled a few other financial planning strategies for parents and young adults to consider:

Time is critical. Begin working with your advisor as early as possible. Those who invest “early and often” for their children are usually in the best position to take care of college expenses – or have more options when looking at schools.

Utilize 529 plans. This tool allows for parents to make contributions, which generate tax-deferred growth over time. Proceeds used for qualified educational expenses are tax-free.

Consider alternative plans. For children who are uncertain in declaring a major, consider enrolling in a community college and then transferring to a different school to shave down initial costs. The diploma will have the desired name on it, but at a fraction of the normal total cost.

Avoid credit cards and stick to a budget. While in school, students should steer clear of credit cards, since “easy money” can spark spending issues. Also, monitor cash flow and allocate expenses carefully.

Prioritize debt repayments. Tackle the smallest debt first. The sense of success that comes from getting rid of a loan can create inertia to paying down other debts efficiently.

Overall, it’s important for parents and children to work together in advance to manage college expenses. A lack of preparation usually creates financial consequences for both parties and can lead to limited options or a less than optimal college experience.