Following is an excerpt from Paying4College How to Save 25-50% On Your Child’s College Education.
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College costs are skyrocketing, and parents can’t seem to keep up. On average, families save $2,676 each year for their children’s education, with a total savings of about $14,000. At the same time, public four-year colleges typically cost about $7,605 each year, meaning parental funds will be tapped out before the end of sophomore year. And forget about private colleges: they cost an average of $27,293 per year, almost doubling in one year what most parents have saved for an entire four years. Looking at these facts, it’s not surprising that many students turn to scholarships and student loans, as parents are either unwilling or unable to save enough to send their kids to college without assistance. Approximately two-thirds of all college students will graduate with a student loan, with the average college student graduating with $25,000 in debt.
Saving a substantial amount of money on your children’s college education starts with avoiding the most common mistakes. Because many parents have acted without the guidance or support of experts, these mistakes happen all too often, costing them unnecessary time and money. Avoiding these mistakes alone will save you time and money, not to mention the saved stress, missteps, and aggravation.
The ten biggest mistakes families make and how to avoid them:
1. Not knowing your retirement needs. Parents simply cannot begin to establish their college “budget” until they understand how much of their income and assets they can pledge toward college without derailing their own retirement. Your student can qualify for loans and scholarships to pay for college. Simply put, you will not find loans and scholarships available for your retirement. It’s the rare parent that calculates the future cost of paying for college and quantifies the impact it will have on them in 20 years. As a simple example, paying an average of $37,000 per year for four years of college equates to a loss of nearly $1800 per month in retirement. That’s not insignificant!
2. Not knowing your EFC (Expected Family Contribution). Most parents don’t even know what EFC stands for before it’s too late to do anything about it. Your Expected Family Contribution is the amount of money the federal government assumes you should have to pay for college. Your EFC is based on the income and assets of the parents, the income and assets of the student, the number of people in your household, the number of people in your household attending college, and the age of the parents. The amount of money the government believes you can put toward college is guaranteed to be more than you would reasonably expect. But with time and effort, there may be ways for you to trim your EFC and increase your aid eligibility.
3. Not establishing a total college “budget.” Parents tend to think of college on a year-by-year basis. The incremental cost of college isn’t nearly as daunting as the aggregated cost – all years, all kids combined. But parents need to understand the total cost of college if they are going to approach their funding challenge strategically. You can’t impact what you don’t fully understand. Think of a doctor treating each symptom rather than diagnosing the total problem… it just prolongs the agony and rarely solves the real issue.
4. Not applying for Financial Aid. The myths surrounding financial aid are numerous, but the biggest reason every family should file the FAFSA (Free Application For Student Aid) and/or CSS Profile (used by a few hundred private schools) is that merit-based aid is handed out through the need-based door. In other words, if you have a marketable student (decent GPA, good test scores, athletic, academic or artistic skills), you are telling the schools you are interested in any incentives they may want to give your child by completing the paperwork. There is financial aid that is not determined based on “need” so raise your hand and let them know you are interested in free money if they are handing it out.
5. Assuming “staying in state” will cost less. Many parents mistake the advertised sticker price for each college as the actual cost. Nothing could be further from the truth! What parents need to know is the actual out-of-pocket expense associated with each school and compare the costs after all the discounts are factored into the bottom line. Private schools have leveled the playing field for years by doling out their endowment dollars to students that fit their profile. Also, it is good business. Schools understand that certain students will thrive at their school, go on to become productive members of society and, twenty or thirty years down the road, contribute to their alumni endowment programs. This allows the institution to continue to attract smart kids to their school. These same private schools have an incredible knack for graduating their students much sooner than the state universities – about 75% more often. The last year of college is always the most expensive because of the inflationary nature of college costs: students at state schools tend to take 5.5 to 6 years to earn a 4 year degree, costing parents more money in the long run.
6. Accepting the idea that junior will “figure it out” once they are away at school. You simply cannot afford to let your son or daughter “experiment” at $20,000, $30,000 or $40,000 per year (going up at 8% per year!). There are terrific, low-cost or no-cost tools available to every high school student to help them understand their strengths, their interests and abilities, their values. It is absolutely possible for a 17 or 18 year-old to have a solid understanding of what their likely career path will be, and what educational curriculum will support that career. But parents need to understand that these tools may not be provided by the schools or the guidance counselor. A small investment of time and money in this area will save most families a fortune in the long run.
7. Waiting until your child is a junior in high school to discuss college. Parents need to create an education culture within their household, and begin this culture at an early age. Setting expectations in terms of what you expect, what you are prepared to invest, what your student should contribute to the process, needs to be woven into conversation early and often. While college isn’t for every student, a lifetime of learning is for every person. Helping your son or daughter understand how to play to their strengths and how to put themselves on a path toward success is one of the greatest gifts you can give them as a parent. I discuss these types of things with my son on our drives to school in the morning – he’s in 4th grade – and I’m always amazed at some of his comments and opinions. Our kids are always more capable than we think and/or give them credit for being! No matter how old they are, it’s not too late. Start the discussion and continue it up until the day they graduate with a college degree, or make a different decision for their future.
8. Not making your student “invest” in their future. If your student doesn’t have any “skin in the game” you are setting yourself up for heartache and unnecessary expense. Kids need to “own” their future. They need to literally invest in their education – in the form of maintaining certain grades, earning scholarship dollars, taking out student loans in their own name, or participating in a work-study program through the college. For families that are fortunate enough to be able to afford to send their kids to college without incurring student loan debt, I still recommend you have the student apply and take the loans. You can pay it off at graduation but benefit from their literal investment while they are in the process of earning the degree. Statistics show that kids who are “invested” finish faster, with better grades.
9. Waiting too long to start this process. The typical parent of a college-bound student in America has saved less than half of one year of the cost of college (College and Retirement, You Can Do Both by Scott T. Moffitt). We are simply letting this enormous investment sneak up on us and find us unprepared. Because of the escalating cost of college, most parents simply cannot save their way to success in terms of funding college. But they could save 40% - 50% of the total cost and then do those things during the high school years that will foot the rest of the bill. Challenging course selection during all four years of high school, college campus visits, marketing a student-athlete to college coaches, standardized test prep courses during the junior year, job shadowing, sending kids away from home for a week at a time (camps, relatives, leadership opportunities), filing financial aid forms, applying to a handful of private schools with a history of generous financial offers… all of these will contribute to a better (cheaper) college selection and college admissions process.
10. Relying too much on the high school guidance counselor. Today’s Guidance Counselor can help your son or daughter find the college “fit” at best or assume the kid is college material and leave them to fend for themselves at worst. The Public Agenda Report published in March 2010 entitled “Can I Get a Little Advise Here: How an Overstretched High School Guidance System is Undermining Students’ College Aspirations” demonstrated that our current system leaves a lot to be desired (http://publicagenda.org/reports/can-i-get-a-little-advice-here). Even if the guidance counselor did help your student figure out a likely path for their future, they cannot and will not help you with the financial realities of funding college. They have neither the training nor the expertise to assist parents in one of their biggest expenses.
To avoid these mistakes, and learn how to get your child the best and most cost-effective college education, get the book Paying4CollegeHow to Save 25-50% On Your Child’s College Education by Beth Walker & Honorée Corder. You can find it at Amazon, Barnes & Noble and Smashwords.
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