Consider Affordability When Building the College List
College-bound students and their families usually begin to create the initial list of institutions to explore in the junior year. Throughout the early research and campus visits, students and parents consider the colleges' size, location, academic programs, and extracurricular offerings as criteria for a "right fit" with their own abilities, interests, aspirations, and family dynamics. In my experience, however, too many families fail to integrate one additional, important variable into the "right fit" assessment early enough: what the family can realistically afford to pay for college. As the rise in college costs continues to outpace most other inflation indices, an understanding of what specific college costs are likely to be is more critical than ever to reducing families' stress and enabling realistic choices for their children. I believe that parents serve their children and themselves best by taking an integrated approach to the college search, including financial planning.
How can families integrate a concern for affordability with their children's other "right fit" criteria?
First, place college costs in the context of your other important financial life decisions. Focusing the college search on options that represent reasonable choices in terms of likely out-of-pocket costs enables families to prepare for the impact of both imminent college costs and their own retirement in the not-too-distant future. It is almost never advisable to use funds from parents' retirement accounts to pay for college.
Second, determine your parameters of college affordability by compiling key financial information. For example, what is your eligibility for financial assistance at each potential institution? Even if children are just entering high school, it is wise to become familiar with the FAFSA, the main application for financial aid, and how colleges use the calculation of the Expected Family Contribution (EFC) to determine eligibility for financial aid. Using MEFA's EFC Calculator or the College Board's EFC calculator, you can enter personal/family financial information to obtain an approximation of your EFC. Colleges subtract your EFC from their total cost each year, and the difference represents your eligibility for financial aid. Though there are exceptions, it is best to assume that you will be paying the amount of you EFC, or more, for each year of college.
After you calculate your EFC, determine if it's realistic – could you pay this amount out of your cash flow and available resources, or is it significantly more than you could hope to come up with? Determine your financial "line in the sand" for college costs and avoid the temptation to sacrifice your financial security or take on heavy financial burdens to pay for college. A college search strategy built from the start around a realistic sense of what is affordable can potentially save you thousands of dollars in out-of-pocket college costs and/or unnecessary loan debt.
Third, understand how financial aid works differently at various colleges. This may be a difficult pill to swallow, but colleges are under no obligation to award you the full amount of your financial aid eligibility. Given the escalation in the cost of college and competition for the "best" students, colleges are more strategic and less consistent in how they allocate their institutional financial aid funds. Knowing how your admission profile (GPA, course selection, and test scores) measures up against a particular college's reported admission data is a good first step toward knowing how much financial aid you might receive. It is common practice for students whose academic profiles are at or near the upper end of a college's applicant pool to receive the most generous financial aid. Conversely, students who are admissible, but undistinguished, in a college's applicant pool may be expected to pay well beyond the EFC to attend that college. Learning more about your outlook in both the admissions and financial aid practices at your chosen colleges can help reduce stress and minimize any negative surprises along the way.
Finally, families would do well to view the college selection and financial aid process as a teaching/learning opportunity. Choosing a college represents an investment decision arguably equal in magnitude and complexity to buying a home, if not greater. As one does when looking for a new home, structure the college search around what you can actually afford. In addition, focus on the best fit for your son or daughter academically and socially. This integrated approach provides an immediate sense that success is possible and usually leads to options where admission is more predictable as well. By involving your child in the cost-related elements of the decision-making process, you are helping impart important personal financial skills that will be priceless in the long run.
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