Can You (or Your Kid) Afford College?

By Michelle Cross, CFP®, CPA, CDFA®, AIF®

APA Cross 8x10 smallParents of high school-aged kids, listen up!  Your “baby” will soon be off to college, something you’ve likely been anticipating for years.  As most of us know, the cost of a college education has increased exponentially in recent years.  According to a Federal Reserve study, between 1985 and 2011, the average tuition rate nationwide increased 498%, more than four times the rate of general inflation as measured by the Consumer Price Index.[1]  Even if you’ve been saving since little Johnny was in diapers (way to go!), you may still have concerns about the affordability of college.  So many times, we hear about students picking a high-cost private university that they couldn’t afford, only to graduate with a mountain of student debt so high that they need to live at home for years just to make ends meet.  

I believe it’s important to educate our children about making smart financial decisions, not how to keep up with the Joneses.

  This includes things like how to properly budget so that he/she can live within his/her means, the importance of saving for emergencies as well as long-term goals and how to build and maintain a good credit score.  Our children need to understand the value of a dollar and what the ramifications are if you buy something you cannot afford.  The importance of this lesson, especially as it relates to picking a university to attend, cannot be understated.

I recently came across a tool that I found beneficial when helping a client work through the college funding process.  It’s called PayForED.com.  It’s a $6 app that calculates your expected family contribution (EFC) and allows you to compare the total all-in costs of up to 10 colleges, all in one report.  It even factors in financial awards that your child has already received and calculates the monthly student loan that he/she would be responsible for.  Being able to see what the child’s future monthly payment is and how it varies from university to university allows you to have a meaningful conversation with your child about evaluating the financial impact of choosing one school over another.

Once you and your child have decided on the best college for the money, you then need to figure out how to pay for it.  There are many different factors that go into this decision.  It’s best to seek out the advice of a professional familiar with the college funding process like school counselors, the college’s office of financial aid and of course, your financial advisor.  Just because you may not be eligible for financial aid doesn’t mean you have to pay full price for college.  There are thousands of merit-based and other scholarships that do not require demonstrating a financial need.  Talk to your child about what the numbers mean for his or her life after graduation and encourage him or her to apply for multiple scholarships. (For example, since 1998, our firm has awarded an annual scholarship to a child or grandchild of an Allegiant client; the one-time scholarship is awarded through an objective selection process conducted by an internal review committee.) Also consider work-study programs or summer employment to teach financial responsibility.  

Preparing for college is an exciting time in your child’s life!  Find joy in celebrating their achievements but also make sure to set them up for success by understanding the cost of their decision.

[1] https://www.forbes.com/sites/tomlindsay/2017/12/13/college-tuition-inflation-an-overblown-crisis/#4e50620589e8