It’s a major life decision that can have tremendous long-range impact on a student’s and family’s financial future. After all, we’ve all heard about the student debt crisis that’s all over the news.
But it’s perfectly possible to avoid the worst of the financial pitfalls that arise with college decisions.
Ideally, every parent would go into the process only after making it clear to their child what they can and cannot afford, so the child does not have unrealistic notions about the school they will attend.
But the reality is that far too many students and parents get caught up in slick marketing campaigns by colleges and forget the tremendous cost involved. Even grandparents are sucked in these days, taking on debt to help fund their grandchildren’s dream education.
All this can seriously affect a family’s finances. I know families and students reeling under the burden of student loan repayments that are the equivalent of a mortgage payment. That kind of debt seriously undermines the financial security of a family.
After putting my four sons through school debt free, and helping many others navigate the process, I have learned a thing or two about things to consider in order to avoid the specter of crippling debt in your own household.
Here are a couple of them:
This is very important. For example, one of my sons received a full scholarship to 2 schools. They both guaranteed tuition and fees for the first year.
But only one carried that guarantee through the 4 years.
Another school offered a scholarship that covered tuition, but not the fees, which turned out to be substantial – to the tune of several thousand dollars each year.
It pays to compare the packages carefully. The difference can be tens of thousands over a 4-year program.
Know the Different Kinds of Aid and Whether the Aid Your Student Will Be Receiving Has Strings Attached or Needs to Be Paid Back.
- Does the aid package involve grants and scholarships that don’t need to be paid back, or are they loans that do need to be?
- What commitment does the student have to make in order to receive and keep the grant or scholarship?
- Does she or he need to maintain a certain GPA, or work for a certain number of hours during school, or commit to a certain type of job when they graduate? These are all points a grant or scholarship recipient needs to know when considering a college.
- If there are loans in the mix, what amount are they and what will be the repayment terms?
- How much will the monthly payment be to pay off the loan, and for how long a period of time?
- Will the payments and interest start accruing as soon as the loan is taken out, or will it start on graduation day, or some other date in the future?
Far too many families blithely ignore the small print on grants or the loan documents in the excitement of college acceptances.
Don’t make that mistake. Demand information from the financial aid office so that you can make a clear-headed decision.
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It's surprisingly how many people don’t realize, for example, that many financial aid packages do not cover room and board at all.
That’s a huge expense that needs to be considered unless the student can commute – always a good possibility to save money. But beyond that, does the aid include fees, books, etc.?
Or are those things the student still needs to pay out of pocket? All those can add up to thousands of dollars in a year, so it’s important to know that.
If it’s not clear, then contact the financial aid office to find out. Try to get any response in writing that confirms coverage.
Know if the Package Leaves a Gap in Covering the Cost of Attending.
Many packages cover only part of the cost of attending, and the student is expected to make up the rest. So you need to know if the proposed package will cover all costs, and how you will cover any that it doesn’t.
Will the family need to go onto the private student loan market to get the rest?
That’s usually much more expensive than government subsidized loans, to the tune of many percentage points on the loan amount.
It's important to get these kind of details so that you can calculate exactly what the different offers really mean for your bottom line.
Despite the temptations to do so, this is not a time to let emotions rule your decisions, no matter how gratifying an acceptance might be.
The implications for your own and your child's financial security are simply too serious to be ignored, so make sure you know what you’re getting into before agreeing to anything or paying that school deposit check.
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Many, if not most, private loans require parental or grandparental co-signers.
I advise very strongly against doing that. That may sound very harsh, but here’s the brutal reality.
If the student is unable to finish college or to find work after college, the co-signer is on the hook for the payments.
And if the student becomes disabled, or even dies, the co-signer is still on the hook for repayment of the loan.
Yes, you read that right. A co-signed loan must be paid back by the co-signers, regardless of what happens to the person who is using the funds.
That’s a grim reality for families who suffer the tragedy of losing a child during the college years. Or whose child is unable to find a job upon graduation.
As I've said before, in general, I advise both students and families to avoid loans as much as possible for undergraduate education. And never let them exceed $10-20K for the entire undergrad years.
When a student and/or family takes on a large student loan, it places a tremendous burden on the debtor. The financial responsibility will have a long-term impact on the opportunities and life choices of the young person carrying the debt.
It's putting them behind before they've even started.
Or it could jeopardize and even destroy a parent's or grandparent's retirement if they've co-signed and are on the hook for repayment if their child can't meet the monthly debt obligation.
Alternatives to Taking on Debt
There are alternatives to taking on debt if you or your child wants to earn a college degree. Here are some routes to a degree that avoid having to take out loans.
- Pick a less expensive college.
- Attend community college for 2 years and earn an associate's degree before transferring to a 4-year school to get your bachelor's degree - just be sure to take the coursework that's necessary to make the transfer easy.
- Seek out scholarships.
- Live at home to save on room and board.
- Find an employer who will help pay your tuition.
College is not the only option
Or consider the possibility of a career path that does not involve college.
The push for every high school graduate to attend college is a recent one, and it's often misguided.
College is not for everyone, and it's certainly not the only path to a decent job and career. So check out opportunities for skills or trade training, certifications, and 2-year degrees that will allow you to make a good living.
Local community colleges typically offer many such options.
They do exist.
The bottom line is that you really need to be informed about the finances involved in the college choices for yourself and the student in your life.
The goal should be to keep your household and your child on sound financial footing now and for the future.
To that end, you want the student to graduate with as little debt burden as possible for all parties concerned. Stay laser focused on that, and forget all the hype.
You'll be very glad you did.