Is it worth the cost to send your child to that expensive Ivy League college? How much should you save for your child’s college education? Financial experts offer tips for saving for college, and tricks for getting financial aid and scholarships.
Calculating college debt
What is the true cost of sending your kids to college? And, even more important, how are you going to pay for it? Today’s parents often have more questions than answers when it comes to their child’s future.
Sallie Mae’s annual "How America Pays for College” survey gives an interesting snapshot into this topic. According to the study, 30 percent use money from grants and scholarships, followed by parent income and savings (27 percent), student borrowing (18 percent), student income and savings (11 percent) and lastly parent borrowing (9 percent).
Sticker shock alert! How much should parents save?
OK, time to get down to business! How much should parents plan on saving for college? CPA and attorney Sandy Botkin, author of Achieve Financial Freedom — Big Time, said that college savings accounts such as a 529 plan, “ideally should be around $140,000 for a private school and about $100,000 for a state school.”
Now that you have pulled yourself off the floor, know that there are some other options for putting your child through college, says Jeremy Hyman, co-author of the book, The Secrets of College Success: Over 800 Tips, Techniques, and Strategies Revealed. “If you're in a lower income bracket, you will qualify for much financial aid, in which case the amount you need to have saved will be less.”
However, even if you aren’t in the lower income bracket, you still have options. More on that to come!
You also need to do your research before deciding where to put your college savings money. “Before you invest in a 529 plan, be sure to do a lot of research,” says Hyman. “Many of these plans are having difficulty delivering what they promised. A web search for your state might reveal some details — and be sure that whatever financial instrument you pick allows your child to attend college in any state, not just your home state.”
Also be aware that even if you save $100,000 for your child, it still may not be enough — and you may have to rely on financial aid, scholarships and/or loans. The cost of college varies greatly from one school to the next. For example, one year at UCLA (University of California, Los Angeles) as a resident living on campus is $32,415, while one year at Harvard will currently run you $64,954. If you are a resident of Oklahoma, however, you can attend Oklahoma State University for only $11,230 per year!
Is it worth it to send your kid to an expensive college?
Your child has his or her heart set on that private dream college. Will it pay off in the end?
“In my opinion, generally no — unless there are mitigating circumstances such as [learning disability] issues, special major etc.,” said Botkin. “A major study by two Princeton University professors shows that the average earnings for [Ivy League] grads over their lifetime compared to smart kids who attend state universities are about the same!”
It is worth it to point out that these expensive colleges, however, often offer great financial aid packages. ”Private colleges offer more in financial aid and scholarships so their net price might be significantly lower than the 'sticker price' that is advertised,” says Jolyn Brand, owner of Brand College Consulting. “Expensive colleges with well-ranked academic programs can be worth it for students who need an edge to get into a certain professional field (such as finance) or students who are going to be applying to grad school, med school or law school.”
How much is too much college debt?
Most students leave college with some sort of college debt to pay back. In fact, Hyman says that the average student in this country graduates with $27,000 worth of debt — about as much debt as you would have on a loan for a family-sized car.
“Unless your college degree is very sure to put you on the path to a high-paying job, we wouldn't recommend going much over this limit,” he says. “Keep in mind that federal loans, at the lowest monthly payment, can be a 10-year affair. That's a long time to be paying off four or five years of college.”
There are some college degrees that pay off more than others. “The degrees with the most 'bang for your buck' are typically in the STEM fields: Science, Technology, Engineering and Math,” says Brand. “Students who major in computer science or engineering are going to be situated the best for high income and many job offers after graduation. Other high-earning potential jobs are available for students who major in business, health care and finance."
You should also keep in mind what percentage of your student loan can be deductible, says Botkin. “People can only deduct up to $2,500 of student loan interest, which is also only available if they make under a certain income. Student loan debt normally averages around 8 percent. Thus, any loan above $33,000 for undergraduate indebtedness could result in interest that isn't deductible. This could be very expensive.”
What’s the 411 on financial aid?
The most important step for applying for financial aid — filling out the Free Application for Federal Student Aid (FAFSA) — is to actually apply and to do it early, says Kaplan Test Prep Director of College Admissions Christine Brown.
“Apply for FAFSA, and apply early. Many students neglect to apply for FAFSA money because they assume their parents earn too much. Wrong approach. Billions of dollars from FAFSA — which includes everything from Pell Grants, to work-study opportunities, to Federal Stafford Loans, and more — are awarded to millions of students of all economic backgrounds," she says. "While it is needs-based and lower income students may benefit the most, students from varying financial situations can receive aid. Submitting a FAFSA doesn’t guarantee that you’ll get college financial aid, but not submitting one guarantees you won’t. You have nothing to lose and the potential to gain. And since FAFSA is a first-come, first-served source, the sooner you apply, the better. Applications open up Jan. 1.”
Andy Lockwood, author of How to Pay 'Wholesale' for College, says you also need to understand the need-based financial aid formulas they use.
“For example, money saved in your child's name can hurt your eligibility because it's penalized almost 4 times as much as savings in a parent's name,” he said. He also shared that financial aid varies, with some colleges meeting 100 percent of financial need — meaning that they are very generous — while some meet 90 percent and others meet 60 percent.
It’s also important to set realistic expectations for your child when he or she is applying to that expensive private school. “I would encourage your child to apply, but set expectations properly at the outset — telling her if the financial aid doesn't work, you can't send her. You don't really know if you can afford it until you apply and get your final offer.”
Be scholarship savvy
You and your teen should treat the hunt for scholarship money like a part-time job, says Brown, who says kids should start banking scholarship money as early as their freshman year in high school.
“You don’t necessarily have to be a 4.0 student or have achieved a perfect 2400 on the SAT or 36 on the ACT — though that certainly helps,” she says. “According to the National Association for College Admission Counseling, students’ scores on the SAT and ACT are leading factors in securing merit aid. There are also thousands of niche scholarships available for those who aren’t necessarily at the head of the class — left-handed students, women who are over 5’10″, and duck callers — they all go to college too! Visit your school’s guidance office and sites like www.findaid.com to see what’s out there.”
You can also put the odds in your favor by looking at how your child’s test scores compare to other students applying.
“Apply to colleges where your candidate is in the top 25 percent (in terms of grades and standardized test scores) compared to the rest of the applicant pool. You're more likely to get scholarship offers because you're more desirable to those colleges," says Lockwood.
Search online at sites like the Sallie Mae Scholarship Finder, which helps match scholarships that are right for your teen by searching through more than 3 million college scholarships.
You can also work with a scholarship consultant, such as Three Wishes Scholarship, who works with your family to help them win merit scholarships for school. Fees for this type of service vary, depending on how much you want off your plate.
Test scores matter
A pairing of good grades and good test scores (ACT or SAT) will produce the best scholarship package, says Kreigh Knerr, director of Knerr Learning Center. Even if your child doesn’t have the best grades, many colleges still base their aid on the ACT or SAT score — so it may be worth it to invest in a good test prep class.
“What this means for consumers is that a good ACT or SAT preparation [course] that raises a student's score even just one point can be the difference between $2,000 or more in scholarships that are applied every year the student is in school,” says Knerr. “That's a 4 times return on investment, which is a very effective way of saving/paying for college, even though the payment is before they enroll.”
Lastly, don't be afraid to negotiate! “Don’t view a financial aid offer as a final offer,” says Brown. “If your dream school offers you a financial aid package but it’s not enough, negotiate. Unlike FAFSA offers, which are non-negotiable, financial aid packages awarded directly by colleges can be considered first offers, not final offers. Since they’ve already accepted you, they more than likely will work with you. Respectfully tell the college why you are a 'must have' student or how your family’s financial situation may have changed to warrant more aid. The worst they can say is no.”
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