Planning for college can be stressful. In addition to selecting a college that is going to be a good academic fit for their student, and which schools are the best financial fit for them and their student, parents must also determine how they are going to pay for it all.
In my college planning workshop, “Pay Less for College”, I talk about three critical questions families must answer to pay less for college. Ideally, families should discuss these issues long before they send their kids off to school.
To pay less for college, parents must be able to answer these three critical questions:
1. What will college cost?
Here in MN, the price of tuition and fees ranges from about $5,373 at a 2-year community college to over $34,000 per year at a 4-year private college or university.
In addition, you can plan on additional expenses like room and board, books, and other expenses to cost another $10,000 or more. Some of the most selective private colleges now have a total cost of attendance exceeding $55,000 – a year!
To help you get more precise information, schools are now required to post a net price calculator on their Web site to provide families an estimate of the net price of college based on a student’s individual circumstances.
The calculator considers the student’s income and assets, the parent’s income and assets and other information, and attempts to estimate the net amount the student and her family will need to pay – net of scholarships and grants –to attend that school.
The idea is to give families some idea of what college will cost so they can plan appropriately. Using this information you can then begin to compare different schools and get more accurate information on which schools might be a good financial fit, before you start making commitments to those schools.
2. Who will pay for it?
In general, there are up to four major partners that play a role in paying for college.
Parents. Mom and Dad usually write the biggest checks and the most checks. I recommend you have an honest conversation with your spouse to figure out what you can afford to contribute and what your limitations are before making any commitments. Next, you will want to have a similar conversation with your student.
Student. The financial aid system expects your kids to help pay for college. In fact, most financial aid awards include student loans and a work-study award as part of your financial aid package. As a family you need to decide what is fair and reasonable for your student. Talk to your student about what she will be expected to contribute and how.
Government. The third partner for most families is the government. According to the College Board, about 27% of students qualify for the type of government-sponsored, need-based financial aid. Often this aid comes in the form of a Pell Grant or MN State Grant. It could also come in the form of a subsidized student loan.
Even if you don’t qualify for traditional need-based aid like the Pell Grant, the IRS says that about 85% of all tax payers qualify for education related tax credits such as the American Opportunity or Lifetime Learning Tax Credits.
Your College. For many families, the schools themselves are often one of the biggest partners they have when it comes to paying less for college. In fact, I believe the single biggest determinant of how much you pay for college is the college that your student chooses to attend.
Many colleges offer merit-based financial aid regardless of your family’s financial need. Awards can range from a few thousand dollars a year to the entire cost of tuition and fees. Other schools may meet 100% of a student’s financial need. It’s your job to get on the websites of the schools you are considering to find out what the opportunities are for your student.
3. Where will the money come from?
I recommend doing a basic cash flow analysis to determine how much you can afford to spend on college. Take into consideration the fact that you are spending money on your kids now. Expenses like sports, music lessons and other activities will end or may be greatly reduced when kids go off to college. Those dollars can be redirected towards college expenses.
Don’t forget to consider other information like money that is currently set aside for college, a reasonable assumption about what your student can afford to contribute, and an estimate of what you might receive for financial aid and tax credits.
You might be surprised to find out how much less intimidating the college expenses are when you break it down to a monthly number. Conversely, if your analysis reveals that you need to come up with a number that you can’t afford, it’s best to deal with that now and adjust your plans accordingly.
Answer these three critical questions, and you will be in a better position to determine which schools are a good financial fit for you and your student, and have gone a long way towards managing your future college expenses.
For a list of the resources I use to help parents answer these questions, email me with the subject line “3 Critical Questions”.