Talking with Your Child about College Costs

Don’t wait to have this conversation. Choosing a college is an emotional event and paying for it can have consequences for the parent and the student.  As a parent of a college student and High School student, I can appreciate how easy it is to get swept up in the emotion of sending your child to a particular school.   What usually happens is families go visit a college and the child falls in love with everything about it.  It is only after the parents look at the cost and Mom and Dad struggle to figure out how to pay for it.  I don’t know if you ever saw the movie “The House” with Will Ferrell and Amy Poehler.    In order to avoid talking to their daughter about college costs, due to a scholarship being taken away, they decide to start an illegal casino in their house to make back back the money.   You may feel that you may have to open a casino yourself to pay for some colleges, but I think the take away is it is important to have these conversations with your child before you start looking at colleges.   The result? Either devastation for the student told by his parents that he can’t go to his dream school that he worked so hard to get into. Or massive student loan money borrowed by the student and by the parents to make it happen.     

It doesn’t have to be this way!

Have a college money talk with your student before you even start your college search.  Whether we are buying a house or a car we usually go in knowing what our budget is for buying.   Why should picking out a college be any different?  Would you even bother test driving a Ferrari if you know you can’t afford it?  

In the same way, having these conversations with your student before you start going for college test drives keeps everyone on the same page. Make no mistake…this is an emotional buying decision. 

The reason why students get all of the mail from colleges is because at then end of the day all of these schools are really just a business.  They are trying to sell your child on attending and College admissions folks are good at what they do.  Having a pragmatic money conversation as a family will keep hearts from being broken, and ensure students graduate with manageable student loan debt without robbing mom and dad’s retirement.   

Easier said than done though right? Money is an uncomfortable thing to talk about. Most of us learned personal finance by attending the school of hard knocks. When it comes to financing college many parents feel embarrassed because they haven’t saved enough money for college. The reality is that every parent wishes they had more saved and started saving earlier. You are not alone!   Remember you are talking with teenagers.   They may not really get why you are having this conversation with them, but they may actually thank you after they graduate with little or no debt.

Let college be a powerful lesson in consumerism for young adults. Use these tips to have a great “money conversation” with your college bound student.

What do they want?

First, determine with your student what they want from college. Do they have a major in mind and how closely does this major match with their personalities and ultimate career goals? Uncertainty can have a real negative effect on your bottom line. Changing a major or transferring colleges can lead to extra years and extra costs.

Give serious consideration to whether a 4-year college is a perfect fit. A community college can be a valuable way to cut costs and move that dream college back into the conversation. Programs such as C-STEP Carolina Student Transfer Excellence Program or similar programs are great ways to graduate with less student loan debt.  Students are able to attend one of the community colleges such as Wake Tech and transfer to schools such as NC State of University of North Carolina Chapel Hill.

In addition, cast a wide net. With so many colleges and universities in the US, you need to explore more than the name brands.

After you have evaluated what your student needs in a college (4-year, community college, chosen major), you can take a hard look at the numbers.

Schedule a time to have the “College Money Talk”

Put it on the calendar or it won’t happen! Sit down with your student to seriously look at the facts and answer these questions:

How much have you saved?

How much can you budget each month out of your paycheck?

How much will the student be responsible for?

How much aid do you qualify for?

How much will it cost?

What is the 4-year plan and the future effect?

How much you have saved is pretty straightforward, but be sure to figure the total saved as of the future date when your student enrolls. A calculator like this one from College Board can help you figure the amount you will have saved including estimated interest at a future point in time.

Determining how much you can pay out of your paycheck each month really adds up. For instance, $500 per month over 48 months in school is $24,000!

Choosing how much a student will be responsible for when paying for college is determined on a family-by-family basis. Some families want to be able to pay the entire bill themselves allowing the student to start fresh after graduating. Some families choose to have the student take on some or all of the expense either because they have no choice or because they want their student to have a personal interest at stake.

Students want to know how they will expected to participate:

Will I be expected to work during school and over the summers?

Will I need to take out student loans?

How does a loan work? (Think about what is it like to be in their shoes.   They probably have no clue what a loan really is about.)

What is the impact of debt to the student’s financial future after graduation?

Students need to be aware of what is expected of them before you start visiting colleges. Will you provide a certain amount? Will you pay for a certain number of years? Hashing out these questions before you start your college search will save unhappiness and resentment later.

Before you can answer the “how much will it cost” question, you have to answer the “how much aid do you qualify” for question. Families need to know their Expected Family Contribution (EFC). The EFC is the amount the federal government expects you to be able to afford to pay from your own pocket. This figure may be shocking, but nevertheless you need to know it. You can use this calculator to estimate your EFC.

Also, each college is now required to have a “Net Price Calculator” on their website. Most of them are easy to complete, and they will give you a projected financial aid package at the university and your out of pocket cost for the year.

They typically include need based aid as well as projected merit aid your student may receive for good grades and ACT/SAT scores. It should go without saying, but keep in mind that is for one year so multiply by 4 and keep in mind that at most schools the tuition cost will increase each year you are in school. Be aware that student loans and work study may be included in this net price projection not just grants and scholarships. 

Now you have an idea of how much you are expected to pay. Not all colleges can make up the difference between sticker price and your EFC, but having the information is a valuable tool as you proceed in your college search. You will be able to get a better idea of the “how much it will cost” question.

Tell me again why I need to go through all this?

If you have all the money saved for your child to go to whatever school they school they choose ($300,000+), you can disregard this message. If this is not your situation and you need to get creative on how you will pay for college, it is imperative that you have the “money conversation” to reduce the stress and anxiety of the college shopping process. Know before you go!

Thanks to Joe Messinger at Captstone Wealth Partners as excerpts and parts of this blog come from his program for college funding.