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It takes a village of options to pay college tuition

Until last week, high school senior Alex Gomez was missing a key piece in his puzzle-like plan to pay college tuition next year to the University of Colorado. The 18-year-old from Ruidoso, New Mexico had already lined up family savings, financial aid, work study and loans, and then won a $7,500 scholarship from student-loan lender Sallie Mae for making a video about how he was going to pay for college."It feels incredible and very, very relieving," says Gomez, who just rented an apartment for next August in Denver. Although 20 percent of families can pay college tuition out of pocket, according to Sallie Mae, most families have to scramble every year to put together the cash before the first day of school. And they cannot really start to do this until they know what the final price tag will be. For high school seniors, that means waiting for financial aid offers that come in March and then having until August to pay the bill."My phone is ringing off the hook," says Jodi Okun, president and founder of College Financial Aid Advisors, a consulting service. "The panic comes from a lot of families not understanding how financial aid works." For those still crafting a college tuition playbook, here are some tips from the pros: PAYMENT PLANS The families calling Okun typically have tuition bills of $20,000 or more, and none of them can just write a check. Her top suggestion is to find out fast if the school has a payment plan, because many require families to sign up in May, rather than waiting until August. Otherwise, "it just becomes a line item in the budget," says financial adviser John Scherer of Trinity Financial Planning in Middleton, Wisconsin.

Even folks with significant incomes get squeezed. Erika Safran, a New York-based financial planner who runs her own firm, has clients who make $250,000 a year and still have a hard time finding the cash for a $60,000 private-college tuition bill."It's not always how much you make, it's also where the funds are going," Safran says. SPEND DOWN THE 529sSafran's clients usually have about $100,000 set aside in college savings plans, and she encourages them to stretch out the funds so they can keep accumulating value through investment. If your state offers tax deductions for 529 contributions, but does not have a limit on how long the money has to be in the account, you can put money in at the last minute and then spend it right away, says Ryan Fuchs, an adviser with Ifrah Financial Services, based in Little Rock, Arkansas. If you have more than one child, you can also move funds between 529 accounts as needed. "If it's overfunded for one, you can use it to fund the other," says Safran.

TAKE THE LOANS About 30 percent of students take federal student loans, according to Sallie Mae, while 7 percent take out private loans. John Scherer and Ryan Fuchs subscribe to the philosophy that families should take whatever subsidized loans you can in the student's name, because the interest is low and does not accumulate until after graduation. Scherer says that some families use this as a carrot and stick incentive - if you do well in school, we will pay off your loans; if you do not, you are on your own. But Erika Safran counters that there is no free lunch, and that families will incur origination fees for any borrowing. So if you have the money, you should pay it up front.

RAIDING OTHER ACCOUNTS On the list of other assets a family might have, Fuchs says many people forget that they can withdraw their Roth IRA contributions (but not the growth) without penalty, as long as the money was there for at least five years. While this impedes retirement savings, "it can be a good source of quick cash," says Fuchs. Next on Fuch's list of the less-good options is a 401(k) loan, which typically can be 50 percent, or up to $50,000, from each parent's account. This option is not ideal if the parent is in a precarious job, will retire before the repayment period is over or it would greatly impede retirement savings. About 1 percent of families take home equity loans, according to Sallie Mae. Safran says this is most palatable for those who can combine it with a refinance. Okun has only had one client who went so far as to sell her house to pay for tuition for her daughter to go to a special opera program. "Her mom said it had to be the best school no matter what," Okun says. (Corrects fourth paragraph to show the percentage who pay out of pocket is 20 percent, not about 25 percent.)

Lenders renew appetite to take and hold leveraged loans

European banks are experiencing renewed appetite to put money to work and are increasingly taking and holding larger positions in leveraged loan deals. Recent years have seen banks reducing holds in deals thanks to pressure on balance sheets and capital restraints. But with balance sheets looking healthier and customer deposits coming in, banks are now more willing to underwrite deals and take larger holds to increase income from higher-yielding assets with lower default risk. “Banks have gained more approval to put balance sheet to work,” a loan banker said. The increasing momentum is affecting both commercial banks and investment banks. Commercial banks are now willing to take larger holds, having scaled back to about 20 million euros ($22.79 million) to 30 million euros for relationship clients during the crisis from around 40 million euros to 50 million euros pre-crisis. Some investment banks, which traditionally do not operate on a take-and-hold basis, have also committed to large portions of recent deals. “Goldman Sachs has been notable. JP Morgan and Bank of America Merrill Lynch also have balance sheet appetite,” the banker said.

A 108 million pound ($165.06 million) Term Loan B paying 550bp, which formed part of a wider US dollar-denominated financing for Vista’s acquisition of ACS, was mostly preplaced with Goldman Sachs. Meanwhile, half of a 237.5 million pound first-lien loan backing Cinven’s acquisition of Northgate Public Services was pre-placed with lead banks Goldman Sachs, Bank of Ireland and Credit Agricole.“Banks need to create profits and want an opportunity to deploy capital, so when opportunities present themselves banks will go into more positions. Banks that take deposits will lend,” a second banker said.

HOME SUPPORT Banks are eager to invest in good assets and also to support deals in their home market. Earlier this week, Bank of Ireland and Goldman Sachs agreed to acquire a portfolio of Irish commercial loans with a face value of 540 million euro from Danske Bank, through their balance sheets. Bank of Ireland will acquire 274 million euros of performing loans, while Goldman Sachs will acquire 266 million euros of loans.

“Leveraged finance has come out of the crisis pretty powerfully. European banks realize that leveraged finance is a core asset as it is high yielding, involves a sponsor group they trust and has a good default rate. Banks have wanted to maintain the same balance sheet for leveraged finance and in many cases, grow it,” an official at a European sponsor said. Banks’ growing appetite is proving popular with sponsors eager to receive large commitments from supportive banks but the ability to take and hold large portions of loans could upset the supply/demand dynamic as investors see a squeeze on paper. On the upside, banks that take and hold portions of loans are expected to support the syndicated parts of loans in the secondary market. Direct lenders are expected to be hit hardest as banks take deals that otherwise could have reached the shadow banking sector. “Direct lenders will need to do lending that banks won’t do, such as stretching leverage,” the sponsor said.