What You Will Actually Pay in College Costs

Factor Student Loans Into Your Cost Equation

You have heard that it costs a lot of money to send a child to college, but you also know that the benefit is well worth the sacrifices your family makes. The advertised amounts you see online are seldom what most families end up paying. To determine the impact paying for a college education will have on your family, start with a general idea of your costs. These include the cost of applying to college, which is sometimes higher than many parents expect.

When you add up the costs of campus visits, tests, application fees, and outside professional advice, you could be out several thousand dollars before the first acceptance letter even arrives.

The cost of attending college can also drive up out-of-pocket cash flow. Even students who receive a “full ride” scholarship need to have a certain amount of money available for personal expenses. You’ll need to take into consideration travel expenses to and from the college, voice and data plans, books, living and food expenses if your student doesn’t stay on-campus, travel abroad programs, entertainment options, out-of-pocket medical costs, and a myriad of other small items that can quickly add up to a substantial amount of money.

Then there is the cost of the education itself. Although the amount of financial aid received can reduce the “sticker” price considerably, any remaining amounts are usually covered through student loans.

The true cost of student loan debt can add a substantial amount to the equation. Although it might feel like these loans are “free” because payments are “out of sight, out of mind” during the college years, the amount due rears its head shortly after graduation. If your student drops out, takes longer to graduate, can’t find a job, or doesn’t earn enough, amounts due add up quickly.

Let’s look at how student loans affect the cost equation.

Amount Borrowed

With federal student loans, graduates are eligible to borrow up to $5,500 in Perkins loans and $5,500 to $12,500 in Direct Subsidized Loans and Direct Unsubsidized Loans per year, depending on certain factors. Parents can also borrow money separately under the PLUS loan program. Over the course of four to five years, those amounts can really add up, and the student could graduate with the family in debt for over $50,000, not counting any private loans that might have been accessed.

Student Loan Fees

Most families don’t look at the cost of fees associated with student loans. Loan fees for Direct Subsidized and Unsubsidized Loans are currently 1.069 percent. Fees for PLUS loans are currently 4.276 percent. Private student loan lenders may have different fee structures. While an extra $10 in fees per $1,000 borrowed doesn’t seem like a lot, it adds hundreds of dollars to the amount you borrow.

Interest Rates

You must determine whether interest is being added to your loan during the college years. For Direct Subsidized Loans, the federal government is covering that cost. But, for Unsubsidized, PLUS and most private student loans, that interest is building and being added to the amount you owe.

Interest rates are 3.76 percent on federal student loans and 6.31 percent on PLUS loans. Add close to $40 per $1,000 borrowed, and you’ll see how quickly these amounts can build.

Late Fees and Penalties

Once you start making payments, there are also late fees and penalties which can be assessed for missing payments or not paying on time.

The Bottom Line

The average Class of 2016 graduate has $37,172 in student loan debt, with an average monthly student loan payment of $351. Paying $200-300 every month out of your take-home salary can severely limit post-college options. You might not be able to attend grad school, you may need to live with your parents longer, you might be forced to put off buying things you’ve always wanted, and it will be more difficult to save and invest your own money.

Put student loans costs together with the costs of applying and attending, and it could be a real eye-opener.

Look carefully for steps you can take to lessen out-of-pocket costs such as extra forms of income, family savings accounts, and private scholarships.