We have all heard the horror stories of college graduates with staggering debt and little hope of repaying it before retiring. The obvious cause of the problem is the seemingly ever-increasing cost of college.
But here’s the thing. When you read the stories about graduates struggling with student loans after graduation, you’ll almost always see that they had alternatives to the large student loans they ended up with. With the high cost of college, more than ever teens need their parents to provide financial guidance when applying to college. Unfortunately, rather than supplying a financial reality check, too many parents make the situation worse by doing the following:
1. Wait until the senior year in high school to have the money talk-or worse, never have the money talk
By putting off the money talk, parents are missing the opportunity to set expectations on what they can afford. Instead, students start thinking about maybe actually getting into their “dream” or reach schools without any consideration of costs. Since the largest scholarship a student receives generally comes from the college she attends, she needs to know to apply to those schools. You can’t get a scholarship from a college you don’t ever apply to. And if you don’t have the money talk, your student may never apply to the colleges that would provide the needed scholarships. So you take out loans instead.
2. Don’t estimate your Expected Family Contribution (EFC) or use Net Price Calculators (NPC)
You really can’t target the schools most likely to meet your family’s financial needs without knowing your EFC or using the school’s NPC. Of course, you can’t know for certain how much financial aid a school will award you until you’re actually accepted. However, knowing your EFC and using the school’s NPC allows you to make sure your college list include schools more likely to provide generous merit or need-based aid.
3. Don’t submit the FAFSA
According to Mark Katrowitz, in The Edvisors® Guide to Completing the
Free Application for Federal Student Aid:
So, unless the parents earn more than $350,000 a year, have more than $1 million in reportable assets, have only one child in college and that child is enrolled at a public college, they should still file the FAFSA. If the family wants to receive federal education loans, they should file the FAFSA regardless of their income and assets.
Unless you’re good with paying the full cost of college, submit the FAFSA. If nothing else, the student will be eligible for lower cost loans, loan consolidation programs, and state aid programs.
4. Take out PLUS Loans
The PLUS program is valuable for families facing unexpected expenses and need a loan to get through a semester or two. It should not be the basis for paying for 4 years of college. If you can’t afford a college without a PLUS loan, you can’t afford the college.
5. Tell your teen, “If you get in, we’ll find a way to pay for it”
If your teen gets into one of the most competitive colleges, it’s only natural for parents to want to make sure they are able to tend. And chances are, that families may be able to afford these schools since many of them have very generous need-based financial aid. But you can’t count on it being the case in your situation. Parents need to let students know as much as they would like for them to go to their dream school, they can only afford to pay so much for college. See reason 1.
6. Pay out-of-state tuition for a public university
Out-of-state tuition is the biggest rip-off for undergraduate students who have an in-state public alternative. Public universities have been increasing out-of-state tuition to make up for cutbacks in government funding. In other words, they’re using out-of-state students to help subsidized in-state tuition. Out-of-state students are paying the cost of attending a private school but getting the resources of a public university. And since these schools don’t tend to provide any financial aid to out-of-state students, students end up taking out loans to pay for the experience.
7. Expect to pay for college with scholarships
Just because a student has great grades doesn’t mean that they’ll be able to apply for and win enough scholarships to pay for college. Most outside scholarships are in $500-$1,000 range. How many scholarships will the student have to apply for to win enough to significantly cut the cost of college? And since they’re only for a year, they’ll have to do it each year. When the scholarships don’t materialize, it’s easy to turn to student loans to make up the difference.
8. Insist your teen stays close to home
If you live in California or the Northeast, insisting that your student attend college within a couple of hours drive of home eliminates a lot of excellent, low-cost alternatives. Private colleges in popular areas can and do charge more for tuition. Furthermore, they tend to provide less merit awards since they have no shortage of students wanting to attend. These schools often use student loans for the majority of their financial aid awards.
9. Plan to claim student is independent to qualify for more financial aid
If you don’t believe parents should have to pay for their kid’s college education, that is certainly your right. However, the government and colleges believe otherwise. This means that you can’t simply declare your child independent by not claiming them on your taxes. Chances are that your child will not meet the requirements to be considered independent. And if you aren’t willing to provide your income tax information for the financial aid application, basically all your child will qualify for will be loans. If you don’t expect to contribute to paying for college, you need to have the money talk as soon as possible.
10. Believe a higher ranked college will pay off after graduation
The fact is that none of the colleges at the top of national rankings guarantee graduation along with a minimum paying job. Their graduates may consistently rank among the highest paid in the various salary surveys but that doesn’t justify taking out loans. The total amount a student should borrow for all four years of college shouldn’t exceed their estimated first year salary.
If you go by the early career pay averages, students at Ivy League schools shouldn’t borrow more than $60,000 for all four years. That will only pay for one year at an Ivy League school. If you’re using potential earnings as a justification, you need to look up real numbers for specific professions along with loan repayment schedules and cost of living considerations.