Personal Finance

How to pay for college after a financial setback

Key Points
  • Considering the last few months — or years — of economic turmoil, parents may find that suddenly they can't pay for college next year.
  • It's not too late to apply for financial assistance or amend your application.
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How to use a 529 plan to save for college

Anyone with money tied up in the markets may be reeling from recent losses. For parents of college-age children with a hefty tuition bill due soon, the stakes are even higher.

If that money was stashed in a 529 college savings plan, balances may be suddenly smaller than expected after stocks experienced a series of roller coaster weeks.

The S&P 500 Index has flirted with bear market territory amid inflation and recession fears while the Dow Jones Industrial Average notched its longest weekly losing streak since 1923.

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Considering the last few months — or years — of economic turmoil, parents may find that suddenly they can't pay for college next year.

Yet even fewer families are applying for financial aid.

The Free Application for Federal Student Aid, or FAFSA, serves as the gateway to all federal money, including loans, work-study and grants, which are the most desirable kind of assistance.

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FAFSA: Finding financial aid

As of March, the number of applications sank 8.9% from last year, according to the National College Attainment Network. (The FAFSA season opened Oct. 1, but it's not too late for students who haven't filed.)

In ordinary years, high school graduates miss out on billions in federal grants because they don't fill out the FAFSA. Many families mistakenly assume they won't qualify for financial aid and don't even bother to apply.

Meanwhile, college costs are rising. Tuition and fees plus room and board for a four-year private college averaged $55,800 in the 2021-22 school year; at four-year, in-state public colleges, it was $27,330, according to the College Board, which tracks trends in college pricing and student aid.

"If you haven't already submitted your FAFSA, update your savings amount for the date you sign it, as a lower account value may mean qualifying for more financial aid," said Kyle Harpin, an investment analyst at Edward Jones. 

For families who have already filed the FAFSA but have since experienced a financial setback, it is also possible to amend their FAFSA form or ask the college financial aid office for more aid, he said.

"The financial aid office of your student's school may still be able to help depending on how the market volatility affected you, so follow up with them."

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How families can appeal for more college financial aid

However, when it comes to financial aid, changes in those account balances matter less than income disruptions — from the loss of a job, for example, according to Kalman Chany, a financial aid consultant and author of The Princeton Review's "Paying for College."

Colleges are likely receptive to appeals, he added, but "they generally can't adjust for assets," which already count less toward determining your aid eligibility, Chany said. "The next month, the market could go up 10%, that's why they generally don't do that."

"You could ask them, but they may say no," he added.

You don't want all your eggs in equities.
Kalman Chany
author of The Princeton Review's "Paying for College"

A better plan is to shift your portfolio allocation to more conservative assets as college approaches.

Generally, 529 plans offer age-based portfolios, which start off with more equity exposure early on in a child's life and then automatically adjust so as the start of college draws near, the portfolio will be weighted toward more conservative investments, like bonds.

"A lot of people keep it in stocks because they don't want to miss out," Chany said. But "you don't want all your eggs in equities."

"Once your child is in high school, you want to be in an age-based allocation model," he advised. "The risk of missing out of upside is less than a huge downdraft — you still have to pay for college."

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