The conversations about college can be wonderful. But those who are short of the money to pay for it can be a very different story. It is typical for a parent to worry that they are placing too much pressure on their teen to try to pay for their college education. And on the other side of the equation, your teen may not have a solid handle on just how much it will cost for tuition and housing and for books and for transportation and for everything else as well as for all of the other expenses of the costs of attending college and the various ways in which those costs can add up from year to year.
It is natural for a parent not to want to put a strain on their teen’s college decision-making process. However, a discussion about college finances will likely be unavoidable and can actually help your teen to make informed decisions regarding his/her college choices, be aware of the amount of money that your family can afford to spend on his/her college education, and take responsibility for helping to pay for his/her college education. The key to such discussions is not to place additional stress on your teen in regard to making college choices but rather to educate your teen and the rest of your family as to what is affordable and to allow your teen to take ownership of aspects of his/her college education.
Start With What Your Family Can Afford
You first want to outline how much your family can afford to pay for your college education. This can be the money that your parents have saved for your education, as well as any money that your relatives might contribute. It can also be money that your parents have set aside in an education savings account. The amount of money that your family can afford to pay for your college education does not have to be revealed in full detail. You just need to have an idea of what your family can afford to pay.
Review Scholarships, Grants, and Work-Study First
Talk to your teen about the different sources of funding that may help pay for college. Start by reviewing the scholarships and grants offered by each school, along with any state, federal, or private awards for which your teen may qualify. Although there is no guarantee that every student will receive this type of aid, applying for financial aid is often necessary to be considered for many available programs.
Work-study may also appear in a financial aid package. However, these opportunities can be limited and may be awarded on a first-come, first-served basis, so students should complete their applications as early as possible.
Understand How Borrowing Fits Into the Plan
After scholarships, grants, savings, work-study, and federal aid have been considered, some families may still face a gap between the aid offered and the full cost of attendance. In that situation, it may be helpful to research private loans for college and compare their interest rates, fees, repayment terms, and total borrowing costs.
Private loans may not offer the same protections or repayment options as federal student loans, so they should be reviewed carefully. They may be considered when federal aid is unavailable or does not cover the remaining expenses, but families should understand exactly how much they are borrowing and who will be responsible for repayment.
Read the Financial Aid Award Carefully
Students and parents should remember that a financial aid package may include both free aid and money that must be repaid with interest. Grants and scholarships generally do not need to be repaid, while student and parent loans do.
At first glance, an award letter may make college appear more affordable than it actually is because all types of aid are often listed together. A large package does not necessarily mean that most of the cost is covered by grants or scholarships. In some cases, a significant portion may consist of borrowed funds.
Before accepting an offer, review each item separately and calculate the actual amount the family will need to pay or borrow. This makes it easier to compare colleges fairly and avoid taking on more debt than necessary.
Compare the Full Cost of Each College
And the costs that must be budgeted for in addition to the student’s tuition, such as for housing, meal plans, textbooks, technology, transportation to and from campus, student fees, and other personal expenses at the college. The total costs of attendance at different colleges can be quite different, even if the amount of tuition charged at the colleges is similar. In order to get a clear sense of which college would be the most affordable for your child and to get a clear sense of the entire budget that will be required to attend your child at college, it is important to have your child examine and compare the total costs of attendance at each college that is under consideration.
Make a simple annual cost estimate for each college under consideration. Then subtract from that number the sum of scholarships, grants, savings, and other resources that will be available to help pay the bill. The result is the real amount of money that will need to be borrowed to pay for that college.
When comparing colleges, students should keep in mind that the tuition is just the tip of the iceberg when considering the cost of the student’s education. Other expenses to consider are the cost of housing, meal plans, textbooks, technology for school, transportation to and from school, student fees, and personal expenses such as haircuts, toiletries, etc. It is also wise to consider the cost of attendance for four years, as costs can increase from year to year. Also, some scholarships are only renewable for additional years of a student’s education if the student maintains a certain grade point average.
Discuss Who Will Be Responsible for Repayment
Who will repay the loans? Parents or the student, or some combination of both? This is another important point to discuss before taking on debt. Should the student’s financial decisions after graduation be impacted by repayment of college debt? How will loan payments fit into the student’s overall financial plan for after graduation?
There is no right or wrong here. You must come to a point of agreement as to who will repay the debt. Students must be made aware of how their repayment could impact their future. For example, how their repayment of student loans could impact their ability to rent an apartment, buy a car, relocate for work, etc. The interest on student loans is just one factor that must be taken into account when borrowing for a student’s education. The amount borrowed, the interest rate, and the repayment period all play a large role in the total amount repaid.
By paying for your child’s college education through a loan, you need to explain to your teen that although they are only borrowing $10,000 for their freshman year of college, they will actually be paying back a lot more than that in the end. It is very important to explain to your teen that interest will be added to the loan over time, in addition to late fees for not paying on time, and that the amount of time that your teen will have to repay the loan will also affect how much they have to pay back in the end. This will help your teen to understand that college loans are serious and that they need to be repaid as agreed upon.
Give Your Teen an Active Role
Just as college finances are the student’s responsibility to manage once they have been accepted to college, decision-making for these expenses should also fall on the student. There are many resources available that can help to pay for all of a student’s college expenses, and there are also many ways that a student can earn money while attending college.
Consider your student participating in savings in ways that do not cover a large portion of the expenses of attending college. He or she can work in the summer to earn money to spend on items throughout the year, such as expensive for-credit courses, purchasing items such as laptops or tablets, or help pay for part of their off-campus housing. In addition, your student could take advantage of used textbooks for his or her classes and also be involved in a part-time job on campus to help manage finances throughout the year.
While discussing how to pay for college with your teen may be uncomfortable at first, discussing your financial resources and estimating the costs for each potential school and subtracting any scholarships, grants, etc., as well as repayment expectations, will make making a decision much easier for both of you in the end.
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