As fall kicks into gear, students begin looking in earnest at colleges. Kids tend to focus on a few core aspects of colleges when creating and narrowing down a list: majors available, location, big vs small. Later in the school year, I get calls from panicked parents whose students have fallen in love with and often been accepted to wonderful schools for which they’re holding their breath waiting for an aid award. Or they’re trying to figure out how to afford a school that is fundamentally unaffordable for them.

I spend a lot of time on this website trying to help people understand the FAFSA and the aid process. But unfortunately, a great deal of that is nibbling around the edges, so to speak. Much like a tax return, where you can strategize and tweak and you may save a few thousand dollars but you will still be a taxpayer, you can manage your income and assets and reduce your EFC through advance planning, but you will still be on the hook to pay for college.

That’s why it’s important to be upfront with your student about what you can afford, and limit their college seeking to schools that fall within that range. Here is a back-of-the-envelope version of what you can afford each year:

  • 1/4 of your college savings
  • The amount you can pay out of cash flow
  • The amount of the tax credit you’re eligible for
  • The Federal Direct Student Loan amount for the year ($5,500 currently for a college freshman)

That means if you have $20,000 in college savings, can pay $4,000 out of pocket each year, and are eligible for the AOTC, you can afford $5,000 + $4,000 + $2,500 + $5,500 = $17,000. Anything above that will require additional borrowing which will be a drag on your student’s or your own future.

How do you get an education on that budget? Be resourceful. Obviously you’re looking at in-state public schools at this point, and probably mixing in a few quarters of community college. But most important, be upfront with your student that this is the situation you’re in, because most teenagers don’t understand the burden that excessive student loan debt will create for them. It’s far better to have this conversation while they’re still creating their list of schools than after acceptances have come out.