Picture this. Your teenager falls in love with a college, applies and gets in. Celebrations all around, right? Well, hold on. Now picture that your teenager gets no financial aid whatsoever (or not much) from her dream school. Do you have upwards of $50,000 a year set aside to pay her tuition? That’s the sticker price for many private colleges these days. Or will you allow your teenager to take on tens of thousands of dollars in debt—the equivalent of a mortgage, which she’ll need to start paying just months after graduation? How much have you or your student even thought about paying for college?
If neither of these scenarios is palatable to you, then make sure your teenager’s college picks fit your wallet before he or she applies. How? Gina Jacob, a partner with College Liftoff, which specializes in helping families find colleges that fit (academically, socially and financially), offers advice to help you determine how much college will cost.
Tips for Understanding College Costs
1. Understand how financial aid for college tuition works.
“There are basically two main types of college financial aid: gift and self-help aid. Gift aid comes in the form of scholarship and grants and will be offered because the student qualifies for need-based aid or has achieved academically and is being awarded merit-based aid. Grants and scholarships do not have to be repaid. Self-help aid is essentially loans and work study assistance … money you will have to pay back or earn. You want to make sure the vast amount of money you’re offered is free money—and if you are offered financing options make sure you fully understand the interest rate and repayment terms. We’re seeing interest rates offered from universities as high as 9.12 percent, and that’s a bit insane,” explains Jacob.
2. Sit down and determine your budget.
This should include how much you are willing to pay each year or assume in debt for your teenager’s education. It should also include how much your teenager is able to assume in debt or pay per year, by working during the summer or on campus.
3. Put a cap on the amount of debt your teenager will graduate with.
“We recommend no more than half your teenager’s anticipated first year salary,” says Jacob. So, if the field your teenager is interested in pays an average of $40,000 a year for entry level, then your teenager should graduate with no more than $20,000 in debt. A higher debt-load than this ratio means that your student’s paycheck will not allow them to live on their own and pay their bills—and yes, that might even mean she’ll need to move back in with you for quite a while.
4. Research how much aid your teenager’s college picks offer.
Colleges must now publish data on the average aid package offered and the average amount of debt racked up for a four-year degree. This data is reported on sites like US News and World Report and Whitehouse.org (google College Scorecard).
But it’s important to understand that colleges charge different applicants different amounts to attend. Your teenager may be expected to pay $20,000 a year, while her roommate is paying $40,000 a year. To get a more personalized view of what your contribution will be, you can fill out a college’s net-price calculator—available on every college’s website—which will take your specific financial situation into account. Note that these calculators will only offer an estimate. They will not replace going through the entire financial aid evaluation process. Many non-financial factors go into college’s decision to reward your teenager merit aid, for example.
5. Apply to colleges with eyes wide open.
Why set your teenager up for heartache when she gets into a dream school, but can’t afford to go? By evaluating and applying to only colleges (and there are many fine ones) that offer enough aid to make it work for your family’s budget—and your teenager’s debt limit—your teenager will find a school she loves and one that fits your wallet, too.