<p>If we run short a few thousand dollars for a particular semester what is the best choice - Fed Loan or raiding 401K? I know there is a penalty for 401K, but is there any kind of dispensation for being unemployed and using it for tuition? I would prefer not to borrow at all, (S has a big scholarship so he has done his part), but figure its at least 35% on the 401K $$. Borrowing on 401K isn't an option. The $5500 Stafford(?) is that a student loan or a parent loan?</p>
<p>I believe you can roll over your 401k into an IRA account and take money out for qualified college tuition without paying a penalty. You still need to pay tax on the withdrawal, though. Stafford loan belongs to the student and you need file FAFSA to qualify. If you are unemployed or have low income, your child could be qualified for subsidized loan which should be a better option than 401k/IRA withdrawal. You can always pay the Stafford loan off for your child later or help each other pay it off after your child finished college.</p>
<p>If you are unemployed, your 401K is even more important… you are not making contributions while you are not working, so you need to protect the assets from eroding while you get back on your feet.</p>
<p>Can you call Fin Aid and discuss your changed situation?</p>
<p>We didn’t apply for FA at this college as we only needed to come up with a small amount, I thought I might be back at work by the time he started school 
and that isn’t looking likely at this point. I just want to have a fall back plan. We did complete the FAFSA for full pay schools though. I wonder if I move it from ex-company plan to IRA if I have 60 days to put an amount back? We have just had some unanticipated expenses in the last couple of weeks and I don’t want to be short for tuition.
I am hesitant to have S take out a loan, we are not low income so I don’t know if it would be subsidized and I know we would say we would pay it off right away, but you know how things go.</p>
<p>Don’t use your 401k money!</p>
<p>It sounds like you did apply for FA at other schools - so you must have done the FAFSA. Call the FA office of the school - see if you can submit the FAFSA now and have your son get a Stafford loan. It is at a low interest rate - interest is deferred while he is in college - and there is a grace period after graduation before he has to start making payments. You can always pay it off yourself at a later date once your employment situation improves. I would try this approach first before tapping into the 401(k).</p>
<p>You are better off not touching that 401K unless you can borrow it. The problem is that any withdrawal will count as income for the next school year. Better you have yours student borrow from the Stafford program that will permit him to borrow $5500 as a freshman. If you have unmet need according to the FAFSA some of that loan can be subsidized, and if you repay the interest while the student is in school, some STafford programs will give you credit towards the principal. As a parent you can also borrow from PLUS and the repayment terms are flexible if you cannot pay it back right now. If you are turned down by PLUS, your student can get another $4k in Stafford money.</p>
<p>File FAFSA and let the financial aid folks know that you are currently still unemployed. You might get some favorable treatment as a displaced worker. Ask about that.</p>
<p>Idinct…since I kind of know your situation…</p>
<p>Have your son take out the Stafford loans from the get go. He’ll get $5500 divided by 2 semesters. Did you do FAFSA, if not do it now…it’s not too late.</p>
<p>Since your son will probably have junior standing by the end of next school year, that means that he’ll get 7500 divided by 2 semesters for the following year. </p>
<p>Frankly, if his school gets his credits this summer (from dual and AP) he may have soph standing now, and then he’d get 6500 divided by 2 semesters instead. (His school uses standing to determine Staffords).</p>
<p>If you still need more after that, do the Parent Plus loan or some other private loan if that is cheaper. </p>
<p>Leave your 401k alone. :)</p>
<p>If the OP is still unemployed, and falls into certain categories, the dislocated worker category may even yield some Pell money and subsidization of part of the Staffords. The financial aid office should be asked about this possibility as the officers there are the ones who make that determination. Because those funds come from the government and not from the school itself, the fin aid office will not be stuck with budgetary constraints in making this determination.</p>