You may have asked a lot of questions, but have you had “the money talk”?
Large research university or small liberal arts college? City school or rural school? Close to home or out-of-state? As counselors, we talk about finding a school that’s the right “fit” academically and has an atmosphere that suits the student. But.. getting wrapped up in the search for the ‘dream school”, both parents and students can lose sight of the financial consequences of the decision they make. When the acceptance letters come in, families can find themselves scrambling to figure out how they are going to pay for it.
A four-year education at a state school averages about $78,000; at a private university, it is more than double that. More than 70% of graduates leave college with debt. The average debt for the class of 2016 was $37,000. Debt that size can cast a long shadow. So how can you avoid it?
Financial aid experts tell us that families often don’t pay enough attention to actual costs until they are deep in the college admissions process. Parents should be honest about how much they have saved and can afford. They should ask their college-bound child to think about his/her ambitions and expectations, and to be realistic about how much they are willing to shoulder when it comes to debt.
Answering the following questions can help you start the conversation and demystify the process and also may reveal options you haven’t considered.
1. What does your student want to get out of college?
College can be an expensive place to figure out what you want to do in life. Many head off not knowing. They change majors, transfer schools and pay for classes that don’t count toward the degree they eventually choose. That’s why, nationally, only 39% of students graduate in 4 years. Extra time means extra debt. A student with a few years before college can get a better sense of his/her options by exploring different kinds of careers. Older students who are still uncertain might consider a less expensive public university until they have a firm idea of what they want to study.
2. How much will college cost, bottom line?
This is not as simple as merely looking at tuition and room and board charges and multiplying by four. Even at the most expensive colleges, few people pay the actual sticker price. How much you pay depends on your family’s financial situation, the student’s academic record and other factors that influence how much a school offers in grants and scholarships. To get a real cost, you need to get down to the “net price.”
The net price is how much a student pays after subtracting scholarships and grants. All schools who require the FAFSA have a net price calculator on their websites. Input the necessary information on finances, academics and test scores will get you an estimate of the net cost. Loans are not included in the calculation. You won’t know the real net cost until you are accepted and get the formal financial aid offer. But using the calculator will give you an estimate of the out-of-pocket costs and help your target schools in your price range.
One mistake families often make is assuming that the state university will be the most affordable option. Flagship state schools can be pricier than smaller private colleges and a public university in another state could be less expensive than going in-state where you live. Some private colleges, even highly selective ones, can be cheaper than a state school. Public colleges generally award smaller and fewer scholarships than private colleges with rich endowments.
3. How much federal financial aid can our family really expect?
You can get an early read on eligibility for federal aid-grants, loans, and work-study programs by using the Dept. of Education’s FAFSA4caster tool. Then in October of the senior year, parents need to fill out the Free Application for Federal Student Aid (FAFSA). In addition to federal aid, this is the form that states, colleges, and many scholarship programs use to determine eligibility for grants and loans. Don’t make the mistake of not filing a FAFSA because you don’t think you’ll qualify for aid. Everyone is eligible for certain types of federal loans.
4. Are financial aid offers good for 4 years?
Some schools may offer more generous scholarships and grants to freshman to entice them to enroll, but it may not be renewable. If your student receives a merit-based scholarship, ask what the requirements are to qualify each year. If the student has an athletic scholarship, find out whether it continues if he/she sustains a career-ending injury. Have a contingency plan in case they are not renewable. Even if a number of grants and scholarships stays the same for all four years, tuition is likely to rise, so the aid will cover less of the cost. You need to file the FAFSA every year. The amount of assistance you are eligible for can change if your financial circumstances change.
5. How much debt can one student manage?
There’s a rule of thumb for that. The total amount of loans a student takes shouldn’t exceed the salary he expects to earn annually in the early years of his career. For example, if he earns $50,000 after graduation and borrowed that much, he should expect to pay $555 a month under the standard 10 year repayment plan.
6. Should parents contribute, and if so, how much?
The answer depends on willingness and circumstance. Most financial advisors tell parents to prioritize saving for retirement over paying for their kids’ college, at least out of regular income. The thinking goes: You can borrow for college, but you can’t get a loan for retirement. If parents want to contribute, even if they’ve saved money in a 529 plan, they should think carefully about how much to borrow. Follow the same rule of thumb that students should follow. Favor federal Parent Plus loans over private loans which have key advantages, such as flexible repayment options.
7. Any other ways to cut costs?
For those interested in the military, the ROTC program can pay a significant portion of college costs in exchange for some level of on-campus participation and 4 years or more of active duty service. The Army, Air Force, and Navy have ROTC programs with different levels of scholarship, up to full tuition with monthly stipends.
8. What if my student has trouble repaying his/her debt?
The first debt payment is due 6 months after graduation on most federal loans. If it is a struggle, the student needs to know the options. There are several Federal college loan payments can be deferred if a student goes back to school or for hardship, although interest may continue to accrue. If he/she is struggling to pay, he/she may be eligible for income-based repayment programs. If he/she works in public service, there is also the possibility of having loans forgiven.