Borrowing from Family
Generally, it’s best to exhaust all other avenues before asking family or friends for monetary help to pay for educational expenses. If you must borrow from relatives, consider setting up an intra-family loan.
With intra-family loans, the Internal Revenue Service (IRS) requires the family member loaning the money to charge interest at a rate lower than what most banks charge. The IRS sets an Applicable Federal Rate for intra-family loans that varies from about 0.21 percent for loans of up to three years to 2.18 percent for longer-term loans. This is typically a higher return than what the lender would get if the money were in a traditional savings account or invested short-term. However, as with other interest-earning accounts, these earnings are taxable.
If you opt to do this, you should draw up a promissory note to function like a formal IOU, spelling out how and when a loan is to be repaid. The document specifies the interest rate, due date and a fixed repayment schedule. To keep in accordance with IRS requirements and prevent the loan from being viewed as a gift, the lender needs to stay on top of payments and show that efforts are made to collect missed or late payments. The lender should also provide receipts for payments and document all other transactions.
If saving for college hasn’t been a priority and you’re down to the wire, give these last-minute financing options a try:
- Apply for aid or appeal for more. Find out whether it’s too late to submit the Free Application for Federal Student Aid (FAFSA). This is the most important step to getting aid. If you didn’t receive enough monetary help, appeal to your college’s financial aid office for more. You’re more likely to succeed when you present a strong case. Let the office know if you’re struggling because of expenses, like child care costs or a recent medical emergency.
- Submit a special circumstances form. Notify your school’s financial aid officer if your financial situation has changed since you first completed the FAFSA. If you or your parents lost a job or took a pay cut, you might now be eligible for grants that previously didn’t apply to you.
- Ask about scholarships. While you’re talking to your financial aid officer, see whether the school has any unused scholarships to offer. This happens when other students decide to attend a different school or the college receives unexpected donations.
- Get a temporary job. A part-time job can help you fill financial gaps while exposing you to other career opportunities. Going through a temporary employment agency is a faster way to find part-time employment than searching the want ads. Undergraduate and graduate students with financial need can apply for on-campus, part-time jobs via the Federal Work-Study Program.
- Sign up for a payment plan. Many colleges offer payment plans. You may be able to extend your payment date for another month or even until the end of the semester. Just be sure that you’ll have the money when the payment comes due.
- Sell your wheels. If you’re able to use public transportation to get around, consider selling your car. Put the money you save on car loan payments, gas, maintenance, parking and insurance toward tuition and books.
- Talk to your employer. If you currently work, some companies have tuition assistance programs for employees to help defray college costs. Check with your employer’s human resources department to see if this option is available to you.
Section Complete! Here's how you did: