Very few decisions in life are made in a vacuum—what happens in one place always affects something else. The same is true about sending a child to college. That choice has a major financial impact on the student and also on every family member. It can affect the family’s purchasing capabilities, other children’s opportunities for college, and the parents’ retirement options. Four questions every family should answer about paying for college:
How Much Is This Going to Cost?
The cost of college should not be a surprise unveiled only when the bills start arriving. Your family should have a handle on college costs before your child even starts applying. Each school, as well as the federal and state governments, will have information available to help calculate the general costs of attendance and estimate potential financial aid. Your family can use this as a starting point, then back off any anticipated scholarships to determine how much will come from savings or loans.
Can We Really Afford That Amount?
Even though the student is no longer living at home, the family budget is often still used to pay for all of their day-to-day expenses on top of tuition, housing, and books. The family suddenly realizes that there is not enough money to make mortgage payments or home repairs and has to take on additional debt. The family should have a reasonable idea of how much money is available to pay for college. If it is not enough to attend the college of choice, the student should be asked to come up with additional ideas to cover the cost.
Will We Have to Take Out Student Loans?
Student loans are not a bad thing and can be useful in helping to pay for college expenses. The problem is that many families take out the maximum loan limit each year, defer any payments and interest, and are often surprised by how much they owe at graduation. Only then do they start to worry about how they are going to repay loans.
Who Will pay for Those Student Loans?
There are both student and parent loans available through the federal government, but the one thing some families don’t ask themselves is who will repay these student loans. The parents assume the student will make payments, while the student may assume the parents will make payments. Everyone is surprised after graduation when the payment due notices start arriving and there's no agreement in place. It is particularly important for students to understand graduation rates and post-graduation earnings potential from each school if they are going to be responsible for the payments. Even with income-based repayment plans, many find the monthly payments are quite onerous compared to their income and other expenses.
Students may be taking the classes, but going to college is a learning experience for every family. Parents are always trying to get the best for their children, but that strategy can backfire. If it means the family goes into debt, the parents have to postpone their retirement, or the student is saddled with a lifetime of debt, it may not be the wisest choice to attend a particular college. Talk through your options and make the right choice for you.