Divorce is never easy, and paying for college is no cake walk either. Combine these two situations and things can get very complicated very quickly. If you are experiencing a separation and/or a divorce, we thought it would be helpful to give you some tips on how you might approach this major financial decision, what the rules are in the financial aid process, and, finally, how your situation affects various aspects of college financing once your child enrolls in college. In Part One of this series, we discussed your first steps and how to complete the financial aid applications. In Part Two, we will talk about college financing (i.e., student and parent loans), as well as other things to think about once your child is enrolled in college.
College Financing: There are two types of education financing available for parents to use to pay for college. The first is the Federal Direct PLUS Loan, and the second financing subset is the variety of private and state loans that are available for students and parents.
The PLUS Loan is available for any parent to borrow on behalf of their child. This includes both biological/adoptive parents (custodial or noncustodial) and any stepparent who is willing to borrow. In total, parents are allowed to borrow up to the annual cost of the college less other aid that has been received. In order to be approved, the parent must have no adverse credit—e.g., no bankruptcy or foreclosure in the last five years, or no seriously delinquent payments. A parent’s debt-to-income ratio is not a factor in getting approved for this loan.
Private and state loans (only available in certain states) are usually borrowed in the student’s name, and for traditional undergraduate students without established income or credit, a credit-worthy co-signer will be required. The cost of the loan will be determined by the strength of the co-borrower’s credit history, and anyone with strong credit is eligible to co-sign with the student.
In summary, there is plenty of financing available for college, and any parent, regardless of custody status, can borrow or co-sign on behalf of their student.
Considerations Once Your Child is Enrolled:
- Access to Records: When your child enrolls in college, their records are protected under the Family Educational Rights and Privacy Act (FERPA). This means that the student has control over who sees their academic and other records and will have to grant appropriate access to each parent. This is especially important when it comes to the tuition bill—if both parents are going to be involved in paying it, the student will need to grant access to the bill to each. There is no reason for one parent to be the “middle man” and send bills to the other—each parent should be able to have their own access to the information.
- Tax Benefits: There are a variety of tax breaks available for higher education expenses, the most generous of which is the American Opportunity Credit—a $2,500 tax credit if you have $4,000 of eligible expenses. This credit is available for the person who claims the college student as a dependent on their tax return, and there are some income restrictions on who is eligible. If you and your ex-spouse are able to review your current tax strategy together, you may be able to maximize your eligibility for tax breaks and use those funds toward the cost of college.
Like anything, paying for college is accomplished most easily when it’s a team effort. We at College Coach hope this blog series has helped prepare your family to navigate the system and invest in your child’s future. Best of luck!