5 Essential Money Questions to Ask Before Applying to College
Ask and Answer These Key Questions to Determine How Much You Can Pay for College
There is an old saying which implies that “the love of money is the root of all evil.” While this may be true when taken to the extremes, a close relationship with money can have many beneficial effects. When deciding how much a family can afford to pay for college, there needs to be a very clear understanding of the money that is involved.
Ideally, parents and their aspiring college students have discussed college finances for many years, so the student has a realistic expectation of what the family can afford to pay.
In reality, though, many families simply do not hold these discussions with their students. They may be awkward, embarrassing, and challenging. It can require asking the student to make sacrifices, or get past an emotional attachment to one college for the benefit of the rest of the family.
Many families avoid, delay, or deal badly with these discussions, but these tactics only lead to further frustration, confusion and anger. To help alleviate the burden of beginning the conversation, here are five essential money questions to ask before applying to college:
- How is having a student in college going to affect our family financially? Although students like to think of themselves as individuals, there is no denying that they are part of a larger family dynamic. The actions that one person takes can have a deep impact on other family members. A student who dramatically insists on attending a big-ticket school without understanding the financial consequences can undermine family stability. Have your student research the costs of attending each college, and not just the obvious tuition expenses. Have him or her take into consideration other costs the family will have to bear, such as travel, data plans, food, and entertainment expenses. It’s not real until there is a final number.
- How much financial assistance can we expect to receive? There are distinctive types of financial aid available from the federal and state government, as well as the institution itself. Depending on the family’s financial capabilities and the college’s endowment funds, there may be substantial differences from one college to the next. Although you cannot get exact figures until you complete the FAFSA and each school presents its financial aid package, you can get a rough idea of the amount of money most students have to pay.
- How much money does our family have available to pay for college? Some families are able to accumulate a considerable amount of money through college savings plans, while others struggle to make ends meet from paycheck to paycheck. If there is no room for any flexibility in the family budget, it will be very difficult to pay for all of the costs associated with attending a particular college. Some families turn to student loans as the solution, but this can sometimes spiral their finances further into debt.
- How much will we have to borrow in student loans? Families must be very clear as to how much debt they can shoulder through federal and private student loans. Don’t just take the maximum amount offered, and use the money for living expenses, as this tactic can backfire in the future. Think about alternative methods of paying for college so that you can borrow as little as possible.
- What impact will there be when we have to repay student loans? Determine who will be making payments before taking out any student loans. Parents and students need to be clear about who will be responsible, so they can project future payments against estimated income potential. Use the repayment estimator to calculate what borrowing thousands of dollars every year for four or more years will entail on a monthly basis. If family members are asked to co-sign on student loans, it can have a negative effect on their credit rating.
Having a family discussion about paying for college can reveal some painful truths, but it also leads to more informed decision-making. The student and the parents can then move forward based on knowledge, and not assumptions or unrealistic aspirations.