Every year around this time, high school seniors feel the pressure ramping up. Everyone from grandma to the grocery store clerk wants to know: what are you going to do after graduation? Those who plan to go to college field questions about their applications, essays, and visits to university campuses. There’s one topic that’s rarely brought up in polite conversation.
How are you going to pay for your higher education?
When you’re preparing for college, your focus is on test scores, extracurriculars, and whether you’ll get into your top pick. At the same time, you should also be thinking about paying for college. When you graduate, those student loans that didn’t seem like such a big deal at the time can become a major burden. Nearly 70% of students borrow money to cover tuition and expenses, with the average four-year degree holder entering the job market with $30,000 in student loans. Monthly loan payments can quickly become unmanageable, putting young professionals into difficult financial situations as they struggle to launch their careers.
While it may not be the most fun topic among the college-bound crowd, we think how you’re going to pay for college is a vitally important issue to settle ahead of time. Why? Decisions you make about paying for college have the power to impact you for decades after graduation. Before you pick up another glossy brochure or schedule a campus visit, follow these six steps.
1. Calculate the costs
Create a budget that looks at everything you’ll need to attend your dream school—tuition, room and board, books and supplies, a computer, travel, spending money, and all the other expenses you anticipate during undergrad. Now look at your options. You probably already know that private schools are more costly than public, and in-state schools will often be less expensive to attend than out-of-state. Some students opt to earn credits through a community college before transferring to a major university to finish their degrees. Look at all the choices in front of you and come up with some hard numbers to put behind each possible path.
2. Figure out what resources you already have available
There are a variety of ways to pay for college that don’t require loans: everything from using savings (such as a 529 account) from your parents or other family members to earning grants and scholarships. Depending on the school you choose, these sources may only cover part of your expenses. Determining the difference between your current resources and desired college budget will allow you to come up with a workable plan to cover the difference.
3. File your Free Application for Federal Student Aid (FAFSA)
Don’t wait until the federal deadline of June 30 to file your FAFSA—this document is an important piece in the puzzle of figuring out how you’ll pay for college. The FAFSA will tell you what federal loan programs you qualify for, but you may also find out you’re eligible for other types of aid.
4. Have an honest family discussion about who will be paying for college
People are divided on the issue of whether parents should cover their kids’ education costs. Above all, it’s important to be clear and up-front about who will pay for what in your family. There are many different routes to take here, and there’s no one right or wrong answer for all families. What’s most important is coming to an agreement about who’s going to foot the bill well before said bill comes due. Remember parents, there is no financial aid in retirement. Don’t sacrifice your retirement plan to fund your child’s education.
5. Revisit your budgeted numbers for various schools
Now that you have a strong understanding of the money you have available, you’re ready to look back at the school costs you estimated in step one. Calculate the difference between the budget estimate and your currently available resources for each school on your list. These numbers shouldn’t be the only factor that goes into your college decision, but they should be taken into careful consideration. If you’re facing a shortfall, how much are you willing to borrow in order to attend your school of choice? Would a part-time job while attending school help close the gap?
6. Consider your options for making up the difference between budgeted costs and available funds
Once you’ve looked at everything in front of you, you’re ready to plan how you’ll pay for college. Scholarships, grants, and work-study arrangements may help with some of your shortfall, but if you’re like most current college students, you’re going to need to rely on student loans. Although student debt isn’t ideal, it’s a necessity for many people. You can put yourself in the best possible situation by doing your research ahead of time. Federal loans, if you qualify for them, are preferable because they offer better terms. Private loans, which often have flexible interest rates and may require a co-signer, should be avoided if possible. A great rule of thumb is not to borrow more across your four years of school than your estimated first-year salary after graduation. If possible, work to make payments while you’re still in school—doing so will reduce the interest you pay over the life of the loan. Depending on your career goals, you can also look at programs that offer loan forgiveness. Certain vocations, such as teaching or nursing, offer loan forgiveness after a certain number of years. Military service and volunteer organizations may also include programs to reduce or forgive student loan debt. We can’t stress this point enough: do exhaustive research on all the options in front of you, and you’ll help yourself land on the best possible outcome.
Plan ahead for the best outcome
Considering how you’ll pay for college may seem overwhelming as a high school senior. However, simply enrolling at your dream school and borrowing money as you progress is almost guaranteed to leave you in a difficult position when you graduate. There are millions of Americans saddled with trillions of dollars in student loan debt—not just from their own schooling, but also older adults who took on student debt for their children and grandchildren. Some simple calculations and planning can help you graduate college in the strongest possible financial position. If you have questions or would like to schedule a strategy session, please contact us.