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This is the first in an occasional series in personal finance. Each article will address a different aspect of personal finances and provide some tips for you. However, always consult your own financial adviser or tax professional for your specific situation.
For about a week or so, all I’ve been seeing on social media are the requisite first day of school pictures. New clothes, shoes, backpack – and a smiling face – all captured in a moment by proud and excited parents.
However, if your students are closer to college, I’m sure there’s a fair amount of stress. The college visits and tuition bills are looming. For many families, picking the right college can be very stressful. After all, many families think that their child’s future success hinges on making the “right” decision!
In my experience, families will ask “what colleges can my student get into?” In my opinion, that is the wrong question. Why? Because with around 4,000 colleges and universities in the country, your student will get in somewhere.
The “right” question? “What school will offer my student the most financial aid?”
The answer to that question has far reaching implications. After all, getting a lot in financial aid is generally a good thing, but the financial cost of college can still be tremendous. Thus, getting in and paying for college is really a decision about your overall finances and retirement.
An important part of paying for college is having clear expectations with everyone in the family. Try this exercise with your spouse and student. Ask yourselves these questions, jot down the answers privately and then compare. How many of these match?
- Would you prefer your student go to a public or private college?
- How many years of undergraduate do you want to help pay for?
- How much of the college bill do you want to help with? For example, $10,00 per year, or 50 percent of the cost?
- Do you want to help with graduate school? If yes, how much (dollars or percent)?
- Where will you get the money to pay the bill?
In my over 10 years of experience working with families, I have yet to have a set of parents agree with each other! Some have been close, but others have been far, far apart. But getting agreement on the answers is an important part of the college search process. It’s not different than going out to dinner and your child orders the lobster while you were expecting picking something from the fast food dollar menu.
Regardless of what your family decides, helping with the college bill is really a retirement decision. If you decide to help pay for college, you have a number of choices:
- Direct student loans
- Private loans for your student
- PLUS loans (parent loans).
- Private loans for parents
- Tuition payment plans
- Other resources – home equity line/loans, retirement accounts loans or withdrawals, credit cards, etc.
Which is right for your family? Only you can answer that. It could be a combination of things. For example, you could borrow using PLUS loans, and then refinance into a home equity loan. Or you could have your student take on all of the debt and help make payments after graduation.
Whatever option(s) you pick, keep your financial future in mind. Ask yourself the following questions:
- If you borrow as a parent, can you handle the payments after graduation?
- Do you want loan payments (potentially) lasting into retirement?
- What money or resources will you have to use that you were intending for retirement?
- As a result of paying for college, what will that do to your retirement savings?
- How much longer will you have to work – or how much more will you have to save – in order to retire when you want?
One thing I always suggest to parents and students: start applying to outside scholarships. Those are offered by private foundations, companies, etc. This can be a lot of work but can pay off handsomely. And start early. There are many scholarships that are available to high school students as early as freshman year and last through the college years.
Some resources include:
https://bigfuture.collegeboard.org/scholarship-search
https://www.careeronestop.org/toolkit/training/find-scholarships.aspx
I’m sure as a parent, you want to help your student as much as possible. But as you hopefully can see, picking the right college is as much as you as it’s about your student.
Your and your student’s future financial success does hinge upon what you decide and do today.
