Ask Liz Weston

Student loan lender Sallie Mae will provide experts to answer your questions about filing out the Free Application for Federal Student Aid (FAFSA) during a live chat Thursday night, from 9 p.m. to 10 p.m. Eastern. To submit a question in advance or join the chat, visit www.SallieMae.com/FAFSA.

You’ll also find brief how-to videos to learn what documents you need to complete the aid form, get answers to commonly-asked questions and explore the next steps in the financial aid process.

Another great resource is FinAid.org. The site has a FAFSA calculator that can estimate your expected family contribution as well as tons of information about the financial aid process.

Dear Liz: My daughter is a sophomore at a very expensive college, and federal loans cover only $6,500 of her costs. She has taken out two private student loans with me as a cosigner, one at 6.5% interest and the second at 9.9%. I need $15,000 more for this semester’s tuition. I am an unemployed single mother but cannot get much financial aid. She is an above-average student but cannot find any awards or scholarships.

Answer: Your daughter may need to look for a less expensive education, since it appears neither of you can really afford the one she’s getting.

Unlike federal student loans, private student loans tend to be expensive, with variable rates and less flexible repayment options. Borrowers can easily find themselves taking on far more debt than they will be able to repay after graduation, yet this debt typically can’t be discharged in bankruptcy — it can follow your daughter for life.

A better option, if you must borrow, is for you to take out PLUS loans. These are federal loans for parents and graduate students that allow you to borrow the difference between your daughter’s college costs and any financial aid, including federal student loans, she gets. The rates are fixed at 8.5% or less.

PLUS loans do require a credit check. If you don’t pass — you’re 90 days or more overdue on a bill or you’ve had a bankruptcy in the last five years, for example — your daughter’s eligibility for student loans would be increased somewhat to help compensate.

But both of you should be thinking about alternatives. You really shouldn’t borrow money if you don’t have a way to pay it back. When you’re unemployed, taking on $15,000 a semester in debt is pretty foolish.

If her school won’t reconsider her aid package in light of your unemployment, she should be researching less expensive schools to which she could transfer her credits.

Dear Liz: Are banks still lowering the amount of available credit? I’m concerned because we were hoping to use our home equity line of credit to pay for our children’s college educations, if need be.

Our current balance is less than 5% of the total available limit, but my credit reports show our credit line lender recently reviewed our credit history. I am concerned that our bank will lower our available credit as my son is about to start college. Are my concerns valid?

Answer: Perhaps. Lenders have been reducing home equity lines of credit as home values drop. If your mortgage balance and your line of credit total more than 60% of the current value of your home, you may be at risk of having your limit reduced right when you planned to use it.

If that’s the case and your son is heading off to school in the next year, it might be prudent to withdraw the money now and keep it in a savings account.

If college won’t start for several years, though, you might want to explore other options, since it’s generally not a good idea to borrow money so far in advance of when you’ll need it.

Fortunately, you have plenty of options when it comes to paying for college. Just make sure you fill out a Free Application for Federal Student Aid. Even if you don’t qualify for need-based aid, filling out the FAFSA will allow you to apply for federal student loans. Your son can get Stafford loans at a 6.8% fixed rate and you could get PLUS loans with a fixed rate ranging from 7.9% to 8.5%. Although the amount of student loans your son can get is generally limited to $31,000 for an undergraduate degree, PLUS loans allow you to borrow whatever you need to cover any costs not paid for by the student’s financial aid package.

Dear Liz: I would like to know how best to use a $100,000 inheritance. I am a stay-at-home mom, age 46. My husband, 42, earns $100,000 a year.

We owe $132,000 on our house and have no other debt. We pay off our one credit card in full monthly. He puts the maximum into his 401(k). We have two sons, ages 5 and 8.

Should we use the money to pay down our mortgage? I’m not interested in saving for college. We will be retiring about the time the kids are ready for college and we plan to have them take out student loans.

Answer: If you can save for college, you probably should.

College costs show few signs of moderating, so your older child might face a bill of $140,000 for an in-state public college or $200,000 or more for a private or selective public college. The cost for your younger child will be even higher. If they borrow the entire cost, they’re likely to remain financially disadvantaged for years. Students who overdose on loans often can’t save enough for retirement and delay starting families and buying homes because of their debt. Anything you save for them could reduce that terrible burden.

You also might want to rethink the idea of retiring when they start college. Even if your husband has been maxing out his retirement fund, it’s unlikely he’ll have saved enough by age 52 to last the rest of your lives, particularly if you have to start paying for health insurance on your own. (Medicare isn’t typically available until you’re 65.)

You didn’t mention savings. Most people should have an emergency fund equal to three months’ expenses, but families with just one earner typically should shoot for six or even nine months’ worth.

In any event, you almost certainly have better things to do with your money than pay down low-rate, potentially tax-deductible debt such as a mortgage.

A better approach might be to divide your inheritance into thirds, investing a third into an emergency fund, a third into your boys’ educations and a third into retirement funds.

A visit to a fee-only financial planner could help you sort through your options and clarify your goals.

Dear Liz: This is regarding your advice to the would-be business major who was accepted at her dream college but who wasn’t offered much financial aid. I was dismayed that you suggested trading down without even knowing which college accepted her. If indeed she got into an Ivy League school, she would be crazy to give up the opportunity. If she is capable, she will be earning millions over a 40-year career. The $200,000 cost of her school would be a drop in the bucket compared with that. The top-tier schools in reality provide more opportunities for both graduate school and career advancement. It is all about “option value,” and these schools provide the greatest upside.

Answer: You may be overestimating the value of an Ivy League education. You’re certainly underestimating the risk of shouldering $200,000 in loans for an undergraduate degree.

A study by a Princeton economist found that those who are accepted at Ivy League schools, but who opt to study elsewhere, do just as well in life as those who graduate from top-tier schools.

If she stuck with her dream school, our student would quickly exhaust the low, fixed-rate federal student loans available to her. The maximum she could borrow under federal student loan programs would be $31,000. That means she would need to turn to private student loans, which tend to have variable rates that currently average around 12% and which have no caps.

Using private student loans to finance an education is equivalent to using credit cards — except unlike credit card debt, student loan debt generally can’t be erased in Bankruptcy Court.

A wiser course for this business major might be to find a more affordable undergraduate education and then seek out a brand-name MBA program. The return on that investment probably would be high enough to justify the cost.