Saving for college is one of the most-avoided topics in college planning. That’s understandable, since the costs can feel overwhelming, and for many of us the response to feeling overwhelmed is paralysis. But with a little planning, the challenge of paying for college is manageable. Here are five important tips for being in a position to afford college and minimize debt.
1. Very Few Families Pay Sticker Price
Most people start planning for college costs by looking at the fees and costs colleges post on their website. These sticker prices can be as much as $65,000 a year, which means about $260,000 for a four-year education, or much more if your child takes five years to graduate. And multiples of that if you have more than one child.
Faced with costs like this, many parents just stop planning. But when it comes to paying for college, parents need to know that very few families pay sticker price. According to a study by the National Association of College and University Business Officers (NACUBO), 87% of all undergraduates at private universities received a significant discount on tuition fees, with average discounts of almost 50%. Public universities also discount tuition and fees significantly.
Universities don’t call these price reductions discounts: they are called merit scholarships, need-based aid, or other names. But these forms of assistance are really discounts in the price of higher education. So if you see a sticker price of $60,000, don’t be alarmed: you are unlikely to pay that much.
2. Paying for College Needs Lots of Planning
Just because you’re not paying full price doesn’t make the process easy. College costs can still be quite high. This is especially true for middle-class families. Many make too much money to qualify for need-based financial aid, but not enough to be able to use tax-advantaged instruments like education tax credits.
So wherever you are in the process, develop a plan. Whether your child is in middle-school or in senior year, it’s critical to start planning. Here are three steps to take;
- Start saving as early as you can. Even small amounts of money, like $25 or $50 a month, can make a difference if you start early. There are tax-advantaged accounts like 529 plans that will allow your money to increase without taxes until you withdraw the money.
- If you have significant assets other than your home, consult a financial advisor who understands college planning.
- If you haven’t yet, fill out the college cost estimator created by the Department of Education. This will give you a good sense of your net cost of college. Having a clear picture of how much you might need to spend is critical.
3. Remember, Loans Aren’t Aid
Many colleges send out deeply misleading offers of financial aid that count student loans as financial aid. But remember, student loans need to be paid back. Even subsidized loans, which qualify for more lenient terms, are still loans. And as you think about paying for college, ask yourself: who will pay this money back? If your child doesn’t finish college, they will still owe the money. And if they do, starting life with loans to repay will affect many choices they make: buying a home, buying a car, or starting a family.
So make sure the loans they take on are loans they can afford. Students often take on loans they can’t afford because financial literacy is not taught in many schools. But being a literate buyer can make a huge difference.
4. Consider Not Just Cost, But Return
The aggregate return on the investment in a college education is very good, with the earnings of college graduates exceeding those of non-college graduates by a million dollars by some estimates. But this return varies widely. Some colleges and majors turn out to be very poor investments. According to estimates by Payscale, some colleges have a negative return on investment, which means you’re better off taking the money you’d spend on a student’s education and investing it in U.S. Treasury bonds for them.
The U.S. Department of Education’s College Scorecard site is a great starting place for research on this, as are sites like LifeLaunchr, which take this data into account in helping students pick colleges.
That doesn’t mean that a student who wants to study French Literature or Art History shouldn’t study those subjects. But be realistic before you invest your money. Education does have intrinsic value, but it’s also a means to a secure and prosperous life.
5. Financial Aid is Negotiable
This may be the best-kept secret in the business of higher education. Financial aid offers are negotiable. Universities do not discuss this fact publicly, but if your child is keen to go a university, and more money would make a difference, you can negotiate for a better deal. It’s important to do this respectfully and in a way that reflects real concerns, so as you work with financial aid officials, present your case for why you need and deserve more assistance. Writing a letter to financial aid officials is a great start. Once they reply, you can get on the phone. When they ask for more information, provide it quickly. And make sure you are honest in the information you provide, as you might have to back it up.
No matter where you are in your child’s school life, paying for college is a challenge. But these tips can help you develop a plan that is realistic and provides your teen with the best opportunities possible.