How can you pay for college now?

By BusinessWeek

Some unlucky investors like Dino Macaluso are feeling the double whammy of the market meltdown: They are watching their investment portfolios shrivel while college tuition payments loom.

Macaluso, from Albany, N.Y., is considering a line of credit on his house to pay for his son's college so that he doesn't have to liquidate investments until they bounce back.

"I have set aside enough cash to cover the first year's tuition, so I am looking to buy myself more time for the next three years," says Macaluso, who expects to spend more than $50,000 on college tuition annually.

American University in Washington, D.C., is one college that is anticipating just such anxieties. It e-mailed a letter to undergraduate students and parents in the fall, offering assistance "in these challenging times."

• Play the video to the right for tips on paying college tuition.

"The nation's current financial climate has caused uncertainty for people across our country and around the world. With turmoil in the credit markets and the tightening of available credit and loans, we recognize the impact this could have on students and their families," the letter from university Provost Scott Bass says.

Aiding needy students

American was planning to create a pool of cash for needy students who already have financial aid, says Maralee Csellar, a university spokeswoman. In addition, "we are looking into ways to help students who do not have aid," Csellar says. American's costs for the 2008-09 school year are about $45,000 for a full-time student, including room and board.

Even before the market swooned, families with college-bound children started to buckle down. According to a survey of more than 2,000 parents conducted jointly by ApplyWise.com and Next Step magazine, a majority of families with college-bound teens had redirected their children's college searches in the previous six months to more-economical options, including four-year public colleges. In addition, parents say they are cutting discretionary spending to save more for their children's college educations.

What can you do to pay -- and even save -- for college in a dicey market? Here are savvy moves to make now:

Hit the financial aid office

If you have your college savings in a 529 plan, you should be in decent shape because the asset allocation models in these programs direct most college savings in cash and bonds as college nears.

But if you are winging it and have the bulk of your educational savings tied up in stocks, there's not much you can do now. "Leave the current investments alone," says Jamie Milne, an adviser at Milne Financial Planning in St. Johnsbury, Vt.

In fact, if you have a 529 account that has lost a lot of money and you have more than one child, consider switching the beneficiary on the 529 plan for a college-bound child to a younger sibling. "It will buy you more time," says William Jordan, the president of Sentinel College Funding, which offers financial planning advice in Laguna Hills, Calif.

If you need alternative sources of funding, experts say your best bet is to try your school's financial aid office first, even if you didn't qualify for aid in the past. "What I've learned from my experience working in financial aid offices (at Brown University and Columbia University) is that there's a lot of flexibility involved," says Rod Bugarin, a financial aid adviser at ApplyWise, which offers college admissions guidance. (Also see "How to find free money for college.")

Investigate emergency loans

It's a little-known fact that many schools offer emergency loans to needy students. Though these loans won't cover entire tuition bills, they can provide some immediate relief: The biggest emergency loan Bugarin awarded when he was working in a university financial aid office was several thousand dollars.

Other kinds of aid are also available to students, including Perkins loans, which are administered by individual educational institutions. Under the Perkins program, undergraduates are eligible for $4,000 a year, and graduate students can receive up to $6,000 annually.

Continued: Escape early-withdrawal penalties

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