Youth – College Costs

The fact that you are reading this means you have paid some degree of attention to the current economic situation. You don’t need someone else to tell you there is less money in your accounts now than before. You have probably made the decision to work longer to build up your coffers. That strategy works well for expenses you can stave off—think retirement accounts—but what about college savings?

Parents with college-ready kids are facing a perfect economic storm. First, the accounts they have spent years contributing to are taking a beating. Even families who planned ahead for their kids to attend college are seeing their accounts dwindle.

Not only are accounts dwindling, but college expenses are increasing. College tuition and living expenses rise, on average, 5-6% per year—far out pacing inflation. Colleges have become businesses who must recruit for the best students. And the things that attract students—new academic buildings, trendy student lounges, and “free” iPods and laptops all cost money. Guess who gets stuck with the bill?

But even as costs continue to skyrocket, parents continue to trot their kids off to college in record numbers. The U.S. Census Bureau notes that college attendance rose some three million students in the last six years—with 29.3 million students trotting through ivy-shrouded academic buildings and living on a diet of cold pizza for a year. Parents are OK with one less meal out a week or selling the family boat, but struggle to tell their kids they can’t attend college. And there’s a good reason for that: Most jobs now require at least an undergraduate degree—and many an advanced or specialized degree—for employment.

So what are parents who want the best for their kids but have witnessed their savings slide away?

First, if you haven’t already, start saving. You hear about parents who start applying to top-notch schools before their kids are born? They sound over zealous? Maybe. But start saving when your kids are young, contribute to a 529 Savings Plan. If you are already saving, continue to do so.

If you want to estimate what a school will cost look at their current tuition and room and board expenses for 2010-11. Then add 5-6% for each year away from college your kid is. That means if a schools currently has a fee structure of 25,000 dollars (a mid-level state school), it will cost about 28,940 by the time your current 10^th grade kid attends her first year. Scared yet? That is just the first year—remember to plan on a 5-6% increase yearly.

Again, the fact you are reading this article means you have probably already started saving. So what’s the next step?

When your kids are 15-16 sit down and have a frank conversation about the realities of college. Too many parents fall in to the sentimental trap of giving in to whatever their kids want for college, regardless of finances. This is both dangerous and foolish. With your kid, sit down and make a list with three categories: dream schools if finances are not an issue, mid-level schools that you see as realistic, and safety-schools if your financial situation gets worse (yes, that can still happen).

Next, keep saving. Remember: 5-6% increase a year.

Here’s the secret most people don’t know: Almost no one pays the full sticker price of a college. Most schools, especially private schools, offer generous financial aid packages. The only way to find out what money your kid is eligible for is to apply to a school and see. Also, make sure to fill out the FAFSA. That is the document that will determine the amount in loans and grants your student qualifies for. There are subsidized loans and un-subsidized loans. Subsidized loans are preferable because the interest on them does not start accruing until the student is not in school full-time anymore.

In addition, here are some other general tips in funding college.

Do: Encourage academic performance. One of the most overlooked college financing options rests with your kid. Students who perform well academically and score high on the ACT/SAT are eligible for a host of scholarships—both at the school and privately. There are many private scholarships that go unawarded each year for lack of applicants. Have your student talk with his or her guidance counselor for advice where to look and apply.

Don’t: Bank on athletic scholarships. You have a better chance of winning the lottery.

Do: Consult the numerous resources that rank college. The US News and World Report and Princeton Review are two of the better ones. They rank schools by everything from academic reputation to cafeterias to value. But be advised: The term value applies to more than tuition and what the student is afforded in terms of opportunities at the college. For instance, St. Olaf and its 45,300 dollar comprehensive fee is listed as a best value.

Don’t: Take the rankings as an end all be all. There is a lot of debate amongst colleges as to the utility of such ranking services. Many schools are ranked on past numbers and, if you are cynic, on the money they contribute to the publications. Still, they are a guide.

Do: Consider all schools—both public and private. As state earlier, many private colleges, even though they carry a higher comprehensive price tag, end up being the same price or cheaper based on the private scholarships they can offer.

Don’t: Give up on a public school because it is out of state. Many states have reciprocity agreements with other states to encourage cross-state matriculation of students.

Do: Consider loans. Almost all college students have them, and their low interest rates usually make them comfortable to repay with a typical post-college job. Also, knowing that the student will be paying for the education later often makes him more invested in school while there.

Don’t: Be tempted by the low interest rates of home equity loans to finance college expenses. Yes, the interest rate is low, but home equity loans cannot go into forbearance if the student goes on to graduate sc hool or is unable to afford the payments the way other education-related loans can.

No matter where your kids are in their college path, there is something you can do to prepare for college. Be it saving, looking at colleges, applying for scholarships or the FAFSA, it is never too early to plan. Actually, you should always be saving.