Ten Steps Toward Making College Affordable
Touring colleges in New England with our daughter this past summer, we fell in love with several of the campuses we visited. But when we got home to Ohio, reality hit us like a cold, wet Nor’easter. After sitting down with our tax return and plugging in some numbers, we learned that our daughter’s tuition at those colleges would be about what it would cost us to buy a fully-loaded minivan—each and every year for four years in a row. Ouch.
As a parent, you hear a lot about how expensive it is to send a teenager to college. Yet, for whatever reason, I didn’t quite believe it until those numbers were staring me in the face.
Apparently, my husband and I are in good company. Like many middle-class families, we earn too much to be eligible for much need-based financial aid, but we don’t earn enough to be able to write a check for $40,000-plus.
Clearly, I needed some advice for making college affordable. So I picked up the phone and spent a few weeks talking to experts across the country. I’m happy to report that there are some real ways that parents can lower the bill. But—and it’s a big but—it requires you to make cutting college costs a priority well before your teenager takes her first campus tour.
Here’s what it takes.
Cutting College Costs: College Finance Tips
1) Understand What You Will Actually Pay
The sticker prices at many U.S. colleges and universities can be shocking, especially at top-tier institutions—like all of the Ivies—which are now upwards of $60,000 a year. Public universities cost less, but flagship public campuses can still run more than $25,000 for in-state tuition (and much higher for out-of-state).
The good news is that the majority of families do not pay sticker price. Instead, what they pay is an institution’s “net price,” so net price is the critical number you must consider when evaluating whether a specific college is affordable for your family.
The net price is the total cost of going to that particular college—tuition, room and board, fees, books, etc.—minus whatever “gift aid” the college awards your teenager. It’s what you will be on the hook for paying, in cash and loans, in order for your teenager to go to that school. (See number 6 for how you can calculate your family’s net price before your teenager applies.)
What net price can your family afford? It’s a question you can answer only after determining (1) how much you can pay out of pocket each year, and (2) how much money you’re willing to let your teenager borrow.
2) Learn How To Keep Debt Reasonable
There’s no question that going to college is a worthwhile investment. College graduates will out-earn their non-college-graduate peers by almost a million dollars over a lifetime, according to a 2014 report by the Federal Reserve. But too much debt will financially cripple your teenager, potentially for decades. The bottom line according to experts: Total debt for undergraduate and graduate school combined should be no more than your teenager’s expected first-year salary. “Borrowing more than that will put the student under a lot of financial stress,” explains David Levy, an editor with the Las Vegas-based financial aid consultancy Edvisors. “But if they borrow no more than what their starting salary is, they will be able to pay off that student loan indebtedness within 10 years.”
Your teenager wants to major in marketing? His debt should be no more than $40,000, or $10,000 a year. Your teenager plans to study computer science? Well, her debt can top out around $60,000, or $15,000 a year. But experts also recommend families tread cautiously here. We’re talking about 17-year-olds, so there’s an excellent chance your teenager is going to change her mind about what she wants to be when she grows up many times before she graduates from college. Unless your teenager is deeply committed to a particular career choice, it’s best to keep debt as low as possible. (Google “liberal arts salaries” to get some ideas.)
3) Understand How Financial Aid Works (Even If It Bores You to Tears)
When colleges use the term “financial aid,” they’re talking about two completely different kinds of aid. Number one is self-help aid mostly in the form of loans. This is money your teenager will have to pay back. Number two is gift aid in the form of scholarships and grants. This is money your teenager will not have to pay back. Maximizing gift aid is a key way to lower the net price of sending your teenager to college.
Gift aid itself comes in two flavors: need-based and non-need-based. Need-based aid is money awarded based on a family’s financial “need” as determined by the Free Application for Federal Student Aid (FAFSA). In general, the higher your income, the less need-based aid your family will qualify for. Non-need-based aid (often called merit aid) is money that is awarded for your teenager’s accomplishments. Most often it’s for academic achievement, but it could be for sports, music, and other talents or activities. All families are eligible for non-need-based aid.
4) Go Where the Money Is For Your Family
You may be surprised to learn that colleges can vary significantly in the kinds and amounts of gift aid they offer to families. In fact, it’s not unusual for schools that are similar in almost every way to offer dramatically different levels of aid to applicants.
Take Williams College and Kenyon College. Both are highly selective, small, private liberal arts colleges in rural settings. Yet Williams provides no merit aid—zip, nada, zilch—though it offers a lot of need-based aid. Kenyon, on the other hand, does offer merit aid—to the tune of about $12,000 a year per student on average. But Kenyon is not as generous with need-based aid. That means, for higher-income families, Kenyon is likely to be a significantly lower net price than Williams. But for lower-income families Williams is the better bet. This scenario plays out over and over again, so it pays to do your research to figure out where the money is for your family.
Meanwhile, it’s no surprise that so many students attend public universities. Out of the gate, you’ll cut $10,000 to $15,000 (or more) a year off your net price by going this route—and likely even more with financial aid. However, low-income families may actually fare better at private institutions that meet 100 percent of financial need (very few public universities meet full need).
5) Be Open-Minded
It also pays big time to be open-minded about where your teenager goes to college. Middle-class families tend to focus, sometimes overly so, on getting their teenagers into top-tier institutions. Unfortunately, these schools can be really expensive for middle-class families because (like Williams) they frequently don’t offer merit aid.
The truth is, your teenager can be successful at many, many colleges, not just the ones topping the rankings in US News & World Report. “It’s so important to remember that there are many places where your child can thrive,” says Nancy Berk, a psychologist and author of College Bound and Gagged: How to Help Your Kid Get Into a Great College Without Losing Your Savings, Your Relationship, Or Your Mind. “And it’s not dependent on how popular a school is with your peer group or theirs.”
What’s more, if your student is capable of earning a spot at a top-tier institution, then your student has an excellent chance of being offered generous amounts of merit aid at many other schools. Even less-than-stellar students can get significant amounts of merit aid, if they apply carefully. In general, you can improve your chances for merit aid by applying to institutions where your teenager is in the top 25 percent of applicants. Your teenager can also get merit aid for non-academic achievements, often in sports or the arts, but even for activities like volunteering.
“Those merit awards are to reward students, but they’re also to attract students to a particular college,” explains Cecilia Castellano, head of enrollment management at Bowling Green State University in Ohio. “For example, I recently worked with a student who was applying to Yale, University of Michigan, and Bowling Green. She was one of our top scholars. And she received the top award at Bowling Green.”
The student enrolled at BGSU this past fall. “I can’t speak for her, but in our conversations it sounded like Bowling Green was a better fit and we offered more merit aid,” says Castellano.
6) Work Those Net Price Calculators
Thanks to the Obama Administration, every college and university in the United States is now required to offer what’s called a net price calculator. This calculator provides an estimate of your net price at the institution.
Edvisors’ Levy recommends parents fill out the net price calculator for every school they are considering. “It’s better to have that reality check earlier in the process,” he explains. “If you haven’t run the net price calculator, you run the risk of your student applying to schools they’ve dreamed about and then you have to say, ‘I’m sorry, we can’t afford that.’”
These calculators—which families can fill out any time, even in middle school—take around 15 minutes. You’ll need your most recent federal tax return and financial statements (investments, savings, and mortgage statements). What you’ll get is an estimate of your family’s net price for a college, broken down into your expected contribution and the aid you’re eligible for.
While these calculators are absolutely worth using, experts do caution that what you see on the net price calculator isn’t a guarantee. Unfortunately, at schools with mediocre net price calculators, your teenager’s real cost of attendance can be off by several thousand dollars or more.
Sometimes, the schools don’t portray the actual cost of education,” notes Levy. “They don’t put in the room and board or books, for example.” So make sure they have built in all the expenses (tuition, room and board, fees, books, and supplies). Make sure you also consider your teenager’s personal expenses (shampoo, a movie ticket, a new computer) and the costs of traveling to and from campus. If you’re skeptical—and you should be if the calculator only asks a few questions or only includes tuition—call the financial aid office and ask if those numbers are realistic.
7) Save, Even If Your Teenager Is Already in High School
Saving for college can seem overwhelming, especially for families who are already struggling to put away money for retirement. But even modest savings will start making college affordable for your family.
“It’s never too late to start saving for college, even senior year of high school,” says Levy. “Every dollar you save is a dollar less you have to borrow. If your teenager buys a $10 pizza every week, it will cost you about $2,000 over four years. If you pay for that pizza with student loans or other types of borrowing, it will cost you $4,000 by the time that debt is repaid.”
There’s also a pervasive myth that saving for college will significantly impact your teenager’s financial aid award because a college will see that money and assume it’s all up for grabs. Not true, says Levy. Financial aid formulas assess parental assets at a rate of 5.64 percent. So if you have $100,000 in savings, it will increase the amount you are expected to pay out of pocket by $5,000 or so a year (much less than the $100,000 you’ve saved). Note: Money should always be saved in a parent’s name. Any assets in your teenager’s name will be assessed at rates of up to 25 percent. (Be wary of saving in a grandparent’s name too.)
8) Earn College Credit in High School
Of course, an excellent way if cutting college costs is to arrive on campus with credits under your belt. There are three ways to do this: taking Advanced Placement or International Baccalaureate classes—and scoring well enough on the exam to earn credit at the school you’re considering—or participating in your state’s dual enrollment program, which allows teenagers to simultaneously earn high school and college credit by taking classes at participating public institutions.
“For example, with Ohio’s College Credit Plus program, it’s possible to come into college with a semester or even a year of college done,” explains BGSU’s Castellano. “At BG, you’ve just saved yourself $10,000 to $20,000.”
Note that not all colleges and universities will accept AP, IB, or dual enrollment credits. It’s best to check the policies of the colleges you’re considering before assuming it will lower your bill.
9) Don’t Forget About Private Scholarships
You may be leaving money on the table if you don’t also explore private scholarships. These are scholarships offered by not-for-profits, corporations, and religious organizations. And some of them are eligible to students in middle school, if not earlier. “One of my favorites is the Jif Peanut Butter Sandwich Award, where your child could win a $25,000 scholarship. That’s only available for students between the ages of six and 10,” explains Levy.
“A lot of times students only apply for the largest, most generous scholarships,” he adds. “Everyone applies for those. Some of the smaller ones are less competitive. But if you put a few of those together, it’s the same value.”
10) Be Honest
Last, but definitely not least, experts stress that it’s vital to be up front with your teenager—well before she applies—about what you can and cannot afford. And that includes the amount of debt you’re willing to allow your teenager to take on. Think about it. College is a mere four years, but too much debt will follow your teenager around for a long time.
“Have honest conversations,” says Bound and Gagged’s Berk. “And take a deep breath. As parents, we all want what’s best for our children. But unless you keep the big picture in mind—with all the financial details—you cannot make the best decision.”