Choosing which college to apply to can be a daunting undertaking. There are about 5,300 colleges and universities in the U.S. The Programs, facilities and total cost of attending can vary significantly from one institution to another. How does a student choose which college to attend?
- Is a small liberal arts college a better choice than a large research university?
- Will your student have a better college experience in an urban campus or a rural campus?
- Should they choose an out-of-state school or one closer to home?
These are some of the questions your child will face as they explore colleges to apply to. In their search for the perfect college, one important thing that parents and students often overlook is the financial implications. Should the student look for a college with a smaller price tag to minimize their student loan debt? Or should they attend a top college and take on student loans to make up the balance?
Their choice of college and its cost of attendance can have a major impact on their long-term finances. To avoid any nasty surprises, it helps parents to have the college money talk with their kids before they start their college search.
6 Tips for Having the College Money Talk
1. What is the ultimate goal of going to college?
It’s surprising how many students head off to college without really knowing what they want to do. They aren’t sure about what major to take or what kind of job they would take up after graduating. The problem with this is it can be an expensive way to figure things out.
Undecided students often start out choosing a major they’re vaguely interested in. Mid-way through the program, they change majors and sometimes even transfer schools. All of this adds thousands of dollars more to the total cost.
Taking the time to discuss the student’s ultimate goal can save everyone a lot of money and angst. It’s far better to take a gap year than rush into college without a goal straight after high school. Students who use their gap year to explore their options often perform much better in college than those who do not go through this exercise.
2. What is the total cost of college?
There’s much more to the cost of college than just the tuition fees. The total cost must take into consideration accommodation, food, textbooks, school supplies, and transportation. All of these costs add up over four years. And if you take longer to graduate or transfer schools, it gets even more expensive.
The good news is very few families have to pay the total cost of college from their savings. There can be a big difference between sticker price (published price) and net price (what the family actually pays). Most students receive generous financial aid in the form of scholarships and grants, which don’t need to be paid back. The total cost that a family will pay is the sticker price minus scholarships and grants that the student receives.
3. How much federal financial aid can we expect?
The Department of Education uses a specific formula to calculate a student’s eligibility for federal aid. Federal aid includes grants, scholarships, federal student loans, and work-study programs. You can get an estimate of how much your family is eligible for using their Federal Student Aid Estimator Tool. You’ll get a more accurate estimate if you enter the sticker price of the schools you’re interested in.
Once you calculate your family’s estimated federal financial aid, you’ll have a better idea of how much you’ll have to pay.
4. Are parents expected to contribute?
This is usually the most difficult question that families encounter when having the college money talk. Should parents contribute towards their child’s college tuition? If so, how much are they expected to pay?
There is no single answer that’s right for all families. It depends on a number of factors, the most important being the family’s financial situation. Most financial experts advise parents to first consider their retirement savings. If they have saved enough, it’s okay to consider paying for their kids’ college. If they don’t have sufficient retirement savings, they shouldn’t be expected to pay. This is because students can get loans for college but parents can’t get loans for retirement.
However, difficult this discussion, it’s one that must be had. Students should know how much their parents can and will contribute towards their college tuition. Without having this discussion, the student may make plans based on the presumption that their parents will contribute. And if they don’t, it can lead to misunderstandings, tense relationships, and disappointment.
5. How much student loan debt is okay to take on?
It’s relatively easy to get student loans to cover the cost of even the most expensive college. While that may sound like good news, there can be a serious downside. Many students get take on too much student loan debt to cover the cost of the ‘college of their dreams’. The problem arises when they graduate and don’t earn enough to afford the loan repayments.
When having the college money talk, you must discuss potential salaries in the student’s chosen field. Research average starting salaries for bachelor’s degree holders in that field. Dive deeper into the employment prospects and advancement opportunities. Ideally, the total amount of loans a student takes should be in keeping with how much they expect to earn after graduation. If the student’s degree leads to a low-paying job, it’s better to be more conservative.
6. Are there any ways to cut down costs?
There are always ways to cut down the cost of college.
One way to do this is by choosing a college with more affordable fees. Another option is to complete two years at community college and then transfer to a 4-year school. The cost of community college is significantly lower than the cost of private nonprofit colleges. Choosing this path is the best way to cut down the cost of college and save thousands of dollars.
Having the college money talk may sound daunting but it’s important to do it. It helps the student put things in perspective and clarify their short- and long-term goals. More importantly, it clears the air between parents and their students and prevents misunderstandings.
Use College Raptor to discover personalized college matches, cost estimates, acceptance odds, and potential financial aid for schools around the US—for FREE!