I’m taking a brief break from the programming I outlined for myself a week or so ago. It’s September and that means that many people are looking seriously at college for the first time. They may be parents of seniors, parents of freshmen, parents at any point who think now is a good time to start investigating this big future step. And after a few google searches or conversations with friends or counselors, they have concluded, “This is overwhelming! Where do I begin?”
I had two conversations recently that frame that question pretty well, from my world view. If you’re new here, my world view is: families need to make decisions that lead them to affordable college educations for their students. Part of that is saving ahead, part of that is understanding the process and how financial aid works, part of that is doing the hard work of parenting. There are other parts too. The two conversations I had were:
- With an acquaintance who’s a parent of a high school junior: “It feels like I’m letting my kids down if I talk about college from the perspective of cost. It feels dirty. I feel like they should have the opportunity to find what’s best for them.” Is that how you chose your child’s car?
- With a dad looking for an advisor: “My daughter loves this school and we need to figure out how to make it work.” The school in question was going to cost this close-to-retirement family $70,000+ annually.
Where do you begin this massive and potentially overwhelming project of sending your kid to college? With what you can afford. You can find a college that can educate your child at virtually any price. And people succeed with degrees from a variety of institutions. For example:
- Current Rhodes Scholars include graduates of the University of Mississippi, Ohio State University, the University of Kentucky, Boise State University, Chapman University, Lewis & Clark College, University of Arizona, University of Iowa, and more.
- Fortune 500 executive suites are dominated by graduates of public universities, starting with Texas A&M.
- Harvard Business School’s class of 2022 includes graduates of 292 undergraduate institutions.
How do you figure out what you can afford? Start with the back-of-the-envelope calculation:
- Divide your college savings by 4
- Determine how much you can pay out of cash flow annually
- Are you OK with your student borrowing? If so, add the federal direct student loan amount ($6,750 is the average annual amount for four years)
- If you’re eligible for the AOTC, add $2,500
That is what you can afford each year. There may be adjustments pertinent to your situation or goals, such as a family that has done a good job of funding retirement savings and wants to reduce 401k contributions during the college years, or a student attending a direct-admit nursing program who is willing to live at home for a few years after graduation to pay back loans.
Next, get an estimate of your Expected Family Contribution. This will help you to determine if you’re on a path towards need-based or merit-based financial aid; on a need basis, you should expect college to cost no less than your EFC. If your EFC is more than what you can afford, you need to look at merit aid and other solutions such as starting at a local college.
If all of this seems horribly unpalatable to you, please read these stories of actual student loan borrowers and then decide whether affordability is a good starting point for your family’s college planning journey.
There are 2 comments
Totally agree with this post. Affordability is the determining factor at college choice.
Great post. From my own experience and my children I think the student doesn’t completely grasp student debt until they have graduated. My son commented my hobby is financial aid. Both parents and students are so caught up with finding the perfect fit that made money is not a priority. Thank you for helping us all make good financial decisions about college and helping us look ahead. Reading a few of the student debt stories was a sobering eye opener and brought home the need for financial planning before and during college, As parents we are constantly struggling with the balance between paying for college and saving for retirement . We are 57, last child in college with an unexpected reduction in work hours and an unplanned car purchase/payment looming. We hope for last child to only have federal loans ( the cost of a new car) after graduation and no loans for us heading to retirement