10 Financial Questions Every Family Should Discuss Before College
It seems you can't even turn on the news these days without hearing something about college debt. And with good reason. The student loan debt facing our younger generations is one of the greatest financial problems in our country, with long-term impacts on the economy and the financial stability of our society. The debt load carried by many of today's young adults is truly crippling - limiting their ability to do things like buy a home, save for retirement, or start a family.1
How did we get here? The answer is long and complex, involving the government, private lenders, loan servicers, and other entities. But one aspect that we feel is largely at fault for our country's citizens being in this mess is lack of planning.
As a parent who wants to do the best for your children, it's not your fault - it's very likely that no one talked to you about how you were going to pay for college back when you went to school (when the cost was probably quite a bit more manageable), and while there are lots more resources available to families now, most parents aren't aware of them, or don't know how to find them.
To that end, there are 10 important questions that your family should be discussing well before the college bill ever arrives. By taking the time to have these discussions and put together a strategic plan for how you and your student(s) are going to pay for college costs before the college years arrive, you can put your student on the right pathway to a better future - and make sure you don't harm yours in the process.
1. What does your student hope to get out of college?
Going to college just to go to college doesn't make sense in light of current costs. According to the National Center on Education Statistics, only 33.3% of college students graduate in 4 years.2 A major cause for this alarming statistic is that most students head off to college without knowing why, or what they are going to do once they get there. This leads to all kinds of delays, including changing majors, transferring schools, or taking and paying for too many classes that don't even count towards their eventual degree.
To keep this from happening to your family, make sure your student has a clear idea of what they want to go to school for - BEFORE applying.
2. How much is college really going to cost you?
While you won't have an exact figure until the offers and award letters arrive, there are many useful tools that can help you get a very good idea of the "net price" you will have to pay. Most schools have a net price calculator on their website; just be aware that these aren't always extremely accurate or personalized.
Don't assume that public universities in your state will always be the best deal. Many private colleges can actually end up costing you a lot less out of pocket. But you need to be strategic as to where you apply, and make sure you know what you're getting into and understand the investment before you accept an offer.
3. How much financial aid can you expect to receive?
The FAFSA (Free Application for Federal Student Aid) is changing in several substantial ways this year due to the recent FAFSA Simplification Act, so you will want to be aware of how the new changes may impact your family. (With a new form and new rules, there will likely be some delays this year when it comes to processing and awards, so if you have a student attending college this fall or next fall, we would caution you to be prepared.)
You can get an idea of how much aid you might be eligible to receive, by checking out the Federal Student Aid Estimator tool at https://studentaid.gov/aid-estimator/. (Just be aware this tool may not be 100% accurate right now due to the pending changes.)
However, it is best to do this at least a couple of years before your student is applying to colleges. This way, you will have time to make any potential financial moves that could help improve your family's eligibility for aid.
4. How long is the financial aid offer good for?
Some families mistakenly assume that an award letter is good for all 4 years of school. However, many financial aid awards are only given to freshmen, and are not renewable - or your student will have to meet certain criteria in order to continue receiving aid in later years. Be sure you discuss award offers with the school's financial aid office before accepting, and find out the renewal terms of any aid you may have been awarded.
5. How much debt can your student manage?
Our Certified College Financial Consultant advises all of the students we work with to try to avoid taking on any more than their first year's anticipated starting salary in student loan debt. (For example, if your student expects to make around $60,000 per year after graduation in his/her chosen field, he/she should take on no more than $60,000 of student loan debt.) This should make student loan payments manageable in the early years of work.
6. How much should parents contribute towards college costs?
Obviously, this is a personal family decision. Some parents choose to share more of the costs, and others less. However, we advise that parents keep in mind their own future needs. While your student may be able to take a loan to pay for part of college, you won't be able to get a loan to pay for retirement!
We recommend you continue saving for retirement, and if you have extra that you wish to contribute towards college costs, perhaps make it as a loan to the student, and have them pay you back later; after you're retired, you'll need the money more, and hopefully they should be making a good salary by then!
7. Is community college an option?
Many states offer a great education via community colleges, at a fraction of the cost of a state school. This can be a great way to get started and get some core classes out of the way for a cheaper price. Just be sure to check ahead of time and make sure that the credits will transfer to the schools where your student intends to finish his or her degree. (Again, you will want to have this planned out in advance.)
8. Are there alternative ways to cut costs?
There are numerous other ways to reduce the cost of college for your family. ROTC programs can sometimes cover the full cost of tuition, for those interested in a military career. And studying abroad can be substantially cheaper in some countries than here in the U.S., and can even make your student more attractive to employers in certain fields. In some career paths, some employers may also offer to cover the cost of some classes, if your student commits to working for them for a certain time frame after graduation.
Take some time to research and discuss "outside-the-box" strategies like these, and determine if they could work for your student.
9. Will you have a good ROI? (I.e. will college be worth the cost for your student?)
While it can be hard to quantify the value of something as intangible as a college education, there are tools available that can help. You will want to do some research and look at things like graduation rates, post-graduation earnings, and employment rates for the schools your student is considering.
Then, compare these statistics with the amount of debt you or your student plan to take for college, and make sure that ROI makes sense given the rule-of-thumb provided above. If not, you may want to research some more schools.
10. What are your student's loan repayment options?
While it may sound premature to think about this before college even starts, it's one of those planning details that really should be considered ahead of time. Even if your student makes smart choices, picks the right school, and graduates on time, he or she still may have trouble with the loan payments down the road due to unforeseen circumstances.
There are a few different options to keep in mind. Some federal college loans can be deferred for hardship reasons, or if the student goes back to school. Some students may be eligible for income-based repayment options (such as the new SAVE plan), and there are also loan forgiveness programs for public service sector jobs.
When it comes to planning for college, there is no such thing as starting too early! The sooner you address these questions and find satisfactory answers for your specific situation, the better off you and your student will be as you both move into the next chapter of life.
Working with a qualified college financial professional can be extremely helpful for many families. From choosing the right school, to putting your student on a pathway to a career and course of study they will thrive in, to helping maximize your financial aid eligibility, to helping you figure out what is the most efficient way for you to finance the cost of college for your family, a good college planner can offer invaluable resources, tools, and strategies to help your family avoid overpaying for college or taking on too much debt.
Want to learn how we can help? Contact our office to schedule a time to speak with a college planning professional who can help you get the information you need to make the right decisions when it comes to college planning.
The information presented here is for educational purposes only and is not a solicitation for the purchase of any financial product. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting financial professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.