Having the College Money Talk with Your Child
By Joe Messinger, CFP®
January 6, 2023
We hear these stories every day. Mom, Dad, and high school junior visit a college. Junior is thrilled with the school–loves everything about it. Mom and Dad discover too late what it will cost them.
The result? Either devastation for the student told by his parents that he can’t go to his dream school that he worked so hard to get into, or massive student loan money borrowed by the student and by the parents to make it happen.
It doesn’t have to be this way!
Have the college money talk with your student before you even start your college search. When you go shopping for a car, you don’t go shopping without a budget in mind. You don’t test drive a Porsche only to discover what it will cost afterward. You already know a Porsche will set you back at least $50,000, and that is out of your price range, so you don’t even drive one because you know you will love it – which makes saying “no” that much harder.
In the same way, having these conversations with your student before you start going for college test drives keeps everyone on the same page. Make no mistake:
This is an emotional buying decision.
College admissions folks are good at what they do, and they have a great product to sell. Having a pragmatic money conversation as a family will keep hearts from being broken, and ensure students graduate with manageable student loan debt without robbing mom and dad’s retirement.
Easier said than done though, right? Money is an uncomfortable thing to talk about. Most of us learned personal finance by attending the school of hard knocks. When it comes to financing college, many parents feel embarrassed because they haven’t saved enough money for a college education. The reality is that every parent wishes they had more saved and started saving earlier. You are not alone!
Let college be a powerful lesson in consumerism for young adults. Use these tips to have a great “money conversation” with your college-bound student.
What do they want?
First, determine with your student what they want from college. Do they have a major in mind, and how closely does this major match their personalities and ultimate career goals? Uncertainty can have a natural negative effect on your bottom line. Changing a major or transferring colleges can lead to extra years and extra costs.
Give serious thought to whether a 4-year college is a perfect fit. A community college can be a valuable way to cut costs and move that dream college back into the conversation. For example, your student could attend a local community college for two years, then transfer to their “dream school” to complete their degree.
It’s also wise to cast a wide net. With so many colleges and universities in the US, you need to explore more than the name brands everyone thinks of when they apply to college.
After you have evaluated what your student needs in a college (4-year, community college, chosen major), you can take a hard look at the numbers.
Schedule a time to have the “College Money Talk”.
Put it on the calendar or it won’t happen!
Sit down with your student to seriously look at the facts and answer these questions:
- How much have you saved?
- How much can you budget each month out of your paycheck?
- How much will the student be responsible for?
- How much aid do you qualify for?
- How much will it cost?
- What is the 4-year plan, and the future effect?
How much you have saved is pretty straightforward, but be sure to figure the total saved as of the future date when your student enrolls. A calculator like this one from College Board can help you figure the amount you will have saved including estimated interest at a future point in time.
Determining how much you can pay out of your monthly paycheck adds up. For instance, $500 per month over 48 months in school is $24,000!
Choosing how much a student will be responsible for when paying for college is determined on a family-by-family basis. Some families want to be able to pay the entire bill themselves, allowing the student to start fresh after graduating. Some families choose to have the student take on some or all of the expense either because they have no choice, or because they want their student to have a personal interest at stake.
Students want to know how they will be expected to participate:
- Will I be expected to work during school and over the summers?
- Will I need to take out student loans?
- How does a loan work? (They have no idea.)
- What does that mean to my financial future upon graduation?
Students need to know what is expected of them before they start visiting colleges. Will you provide a certain amount? Will you pay for a certain number of years? Hashing out these questions before you start your college search will save unhappiness later.
Before answering the “how much will it cost” question, you have to answer the “how much aid do you qualify for” question.
Families need to know their Expected Family Contribution (EFC). The EFC is the amount the federal government expects you to be able to afford to pay from your pocket. This figure may be shocking, but you need to know it. You can use this calculator to estimate your EFC.
Also, each college must have a “Net Price Calculator” on their website. Most of them are easy to complete, and they will give you a projected financial aid package at the university and your out-of-pocket cost for the year.
They typically include need-based aid and projected merit aid your student may receive for good grades and ACT/SAT scores. It should go without saying but keep in mind that is for one year so multiply by 4 and keep in mind that at most schools, the tuition cost will likely increase each year you are in school. Be aware that this net price projection may include student loans and work-study, not just grants and scholarships. Want an example? Check out Miami’s Net Price Calculator.
You can also leverage a tool like our free College Money Report to get a deeper insight into the actual cost of colleges on your student’s list and what they’ll expect your family to pay.
Now you have an idea of how much you are expected to pay. Not all colleges can make up the difference between sticker price and your EFC, but having the information is a valuable tool as you proceed in your college search. You will better understand the “how much it will cost” question.
Tell me again why I need to go through all of this?
You can disregard this message if you have all the money saved for your child to go to whatever school they choose ($300,000+).
If this is not your situation and you need to get creative on how you will pay for college, you must have the “money conversation” to reduce the stress and anxiety of the college shopping process. Know before you go!
Originally posted October 2016
Updated January 2022
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