Afraid that You Haven’t Saved Enough for College…Read This Column

Ron Lieber of the NYT provides some ideas for families fearful that their children are being priced out or forced to borrow a king’s ransom in order to obtain that college degree.

He captures the current situation:

In just a generation or two, we’ve gone from students working their way through college without too much trouble, to many parents still being able to write checks to cover tuition out of current income, to sticker prices being so high that two decades of savings may not be enough to cover two children from relatively affluent families.

He provides a roadmap for families to figure out how much they will be expected to contribute as well as the gap they are likely to encounter (great lesson idea for personal finance class).  I encourage families to tackle this issue PRIOR to applying to schools:  

1. College Board website allows you to estimate your expected family contribution. This is the number the Federal government provides you after you complete the FAFSA to determine how much federal aid you are eligible for.  This is also used by colleges to determine aid also.

2.  Go to College Navigator site (one of my favorite resources for my students) to determine the Net Price at your favorite colleges based on your family income level.  Net Price represents your out-of-pocket expenses and provides a sense of how generous a college is with grant monies.

3.  Here is a third site he references to help get a handle on merit aid:

Lynn O’Shaughnessy, who writes and teaches courses through a site calledThe College Solution, suggests using a site called collegedata.com. She has avideo on YouTube that explains exactly how to milk the merit data out of the site.

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So, what strategies can a family with limited savings pursue for their children.  He lists a few and then readers (over 400 comments) provided their own too:

  • Be strategic in your college selection:

Parents with no savings and higher incomes need to be more strategic, encouraging their children to apply to at least some colleges where they would be among the very best students. Those institutions may offer more grants in an effort to enhance the quality of their student body.

  • In terms of loans, federal loans first and be wary of private student loans:

The best loans are the federal student loans, and most traditional-age students can take out$31,000 in loans during their time as undergraduates. If you get in trouble later, you can enroll in an income-based repayment plan to lower your payments.  These plans tend not to be available from private lenders who peddle what are known as private student loans. This week, the Consumer Financial Protection Bureau issued a scathing report, calling the lenders out for making little progress on helping distressed borrowers.

  • Parent loans (PLUS) from the federal government can be enticing because they have minimal credit requirements and can cover up to full cost of attendance but watch out…:

It will be tempting to rack these up, come what may, to give a child a shot at attending a dream school. The cost, however, may be payments that last well into what are supposed to be your retirement years. Perhaps your children will help make the payments one day, but you won’t be able to refinance the loans into their names.

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Feedback from readers:

  • Be sure that you understand the terms of your scholarship and whether it is guaranteed for four years and if it has built-in escalators:

“Ask if the scholarships are guaranteed for all of the years of attendance”…The other key question – Will the scholarship increase to keep pace with increases in price? If they are honest, every school I’m aware of will not guarantee any such thing, and if they do, make sure you get it in writing. One’s aid package is awarded in the Spring of the year before s/he starts matriculation…so tuition/fees will typically be raised 4 times by the time senior year starts.”

  • Talk to your kids as early as possible so they know what they can expect from you (from two parents and one student):

Parent 1:  Know what you can and are willing to do for your kids, and have that discussion with them. We had said that we could cover them to live at our state school and they wouldn’t incur any debt. Beyond that, we’d fill out any forms necessary. The line in the sand is that we (the parents) absolutely will not borrow…They must get out in 4 years.

Parent 2:  There are not a lot of ways to beat FAFSA. Do your FAFSA calc as soon as possible, and have the hard conversation with your child before he or she ever looks at a school, on what they are likely to have to do. Know ahead of time what your likely debt will be, and the maximum you will pay per year.

Student 1: First, my parents were very honest with me about their finances from a very young age. I knew at 12-13 that my parents would be able to contribute next to nothing for my college education. My goal was a private school, so I worked hard to excel at academics to make sure that I’d qualify for merit based aid.

  • If you go the low-cost community college route, be sure that credits will transfer:

Many people have made the point that going to a community college can save money. I teach at a public liberal arts college and find many students who transfer to us from community college getting the credit for those CC courses, but if those courses do not fulfill the requirements necessary for a particular major at the baccalaureate granting institution, the student has just wasted a lot of money.