At a recent meeting, a parent raised the concern of how he was going to have a financial conversation with his child about the upcoming award letters and resulting cost decision. His main concern was the discussion of the college cost comparison versus value. He shared a recent incident that occurred while the family was taking a trip. He had forgotten the E-ZPass for the car and they had to stop at the tollgate. From the backseat of the car, he heard one of his children say, “You actually have to pay to cross over this bridge?" It hit him at that moment that he had missed certain financial discussions in the child-rearing process. He also realized that the whole college financial process and future debt conversation was going to be difficult.
The elusive value of a dollar
In this age of credit and debit cards, electronic payments, automatic bill processing, and ATM machines, it's easy to not recognize the value of money. Many of our children do not understand what it is to work and get cash for the work they have actually done. Many have not experienced or seen the net value of their efforts.
Within the next few weeks, many of these same children will be making financial decisions that will affect their financial life for years. The college financing process also does not help in this decision. Unlike most other personal loans, you need to have pre-approval before the money is distributed. The student loan approval process does not have the same rules. This ease of access has a consequence, since these loans cannot be forgiven through bankruptcy. In most cases, these loans need to be paid back and the lenders have the right to garnish your wages, tax refunds, and even Social Security payments.
Plan ahead as best you can
Being able to organize award letters can be difficult because each school has its own format. Students and parents will be comparing need-based aid versus merit awards, and this can create a great deal of confusion. Families should try to standardize the award letters as best they can, which will allow a family to make an easier comparison. A family should also establish an annual budget and look at the cost over a four-year period. This is a significant problem, since the award letters only gives the student a one-year view of the financial commitment. A big mistake many families make is looking primarily at the sticker price. Many of the higher priced colleges can become competitive when you analyze them with graduation rates, retention, and especially if you will have multiple children in college at the same time. If the analysis is done correctly, many of the higher priced colleges are very competitive on a net value comparison basis. The College Affordability EFC PLUS senior tool does these comparisons for you in one place and in a standard format.
Developing a four-year graduation debt analysis is a great starting point for families to have a discussion before the college decision is finalized. This is especially important depending on the degree the child is seeking. Will a post-graduate degree be required to get his or her desired career? There are always surprises in life, and majors can change. Nothing is perfect. The problem I see is that high school seniors often don’t understand the consequences of the debt that they will incur while in college. Knowing their estimated loan payment and outcome will help in the discussion by forcing the student to envision his or her financial future.
What to discuss with your college-bound child
Here are a few key issues that should be discussed before the final college decision is made:
- What is the estimated cost of the education needed to obtain the career desired?
- What is the expected length of education needed? Undergraduate or graduate?
- Determine the requirements of maintaining the merit award.
- How difficult and expensive is travel to and from college? Parent travel costs are not included in the cost of attendance.
- Will the student be moving off campus at some point? If so, what year will this happen, and is there a big difference in the price?
- What are the retention and graduation rates at the desired school? An extra semester or year and transfers can be very expensive.
This is an exciting time for families. We have often stated that there are three things to consider in any college decision: academics, environment/campus fit, and financials. Though financials are crucial, the other two items are just as important and need to be included in your discussions. When all three items are evaluated equally, the best college value can be determined.
The "easy pass" may not exist in the college decision, but we can get students on the proper road to college graduation and a solid financial future. Planning the outcome of a college education will help students choose the best road to success.